The period of expansive public spending and loose fiscal rules has ended. After Russia’s invasion of Ukraine, governments moved to sustain European economic activity during the Covid crisis, and now the Eurozone group of finance ministers has signaled a return to prudent fiscal policies. A formal statement from the Eurogroup affirmed that broad-based stimulus is unlikely given higher inflation and tighter financial conditions, and that deficits should not be allowed to grow permanently.
Eurogroup president Paschal Donohoe noted that the euro area faces a changing inflation environment, calling this a moment to recalibrate the level of financial support in member economies. The declaration aligns with the European Commission’s recent budget guidelines, which urged governments to plan for the end of the general escape clause, monitor deficit levels, and prepare multi year budget adjustments through to the end of April. This reflects a shared view that temporary support should be reined in as price pressures ease and monetary policy tightens in the coming years.
To illustrate, countries with higher debt burdens, such as Spain, are urged to pursue a credible path of debt reduction or stabilization at prudent levels by 2026 at the latest. The aim is to sustain potential growth while investing in green and digital transitions, and strengthening resilience through reforms. The overall aim over the 2023-24 period is to maintain debt sustainability in the medium term while supporting growth and structural investments that improve long-term public value.
clear procedures
The Commission’s outlook notes macroeconomic and budget uncertainties ahead. It suggests there will be no aggressive exceeding deficit procedures this year, though such steps could reappear in the spring of 2024. Some member states have pointed to gaps in these assessments, highlighting how timing and country differences affect policy signals and the pace of reforms. Sources close to the discussions argued that spreading the pace of action might help avoid abrupt policy shifts that could destabilize markets.
Donohoe stressed that the decision to avoid triggering excessive deficit procedures reflects a cautious, transitional moment. The goal is a gradual shift toward normal fiscal discipline rather than an abrupt withdrawal of all support. He noted that the broad consensus is to start a measured reduction of extraordinary measures next spring if data justify it, rather than continuing a rapid tightening this year. Nadia Calviño, First Vice President and Economy Minister, echoed this view, underscoring that avoiding new excessive deficit decisions this year helps shield economies still affected by the conflict’s impact.
The declaration reaffirms the commitment of euro area governments to phase out measures tied to the energy shock. With no new price crises on the horizon, the plan is to steadily unwind energy subsidies and related supports. This strategy aims to shrink the public deficit while safeguarding vulnerable households and large energy users. It also preserves incentives to curb energy consumption and accelerate efficiency gains. A long-standing objective remains: reduce reliance on fossil fuels to strengthen energy security and lower exposure to price volatility.