EU member states and MEPs have reached a preliminary agreement to amend the bloc’s strict fiscal rules. The revised Stability and Growth Pact provides governments with extended timelines for debt reduction and introduces incentives for increased public investments in climate initiatives, industrial policies, and security measures. This move comes in response to record-high debts incurred during the pandemic recovery and the EU’s commitment to ambitious green, industrial, and defense goals.
The updated rules establish minimum deficit and debt reduction targets, albeit less ambitious than previous figures. European Commission Vice-President Valdis Dombrovskis emphasized that the new rules would address current economic and geopolitical challenges, providing member states with clarity and predictability regarding fiscal policies for the years ahead. Dombrovskis believes these rules will enhance the sustainability of public finances and encourage sustainable growth through investment incentives and reforms.
MEP Margarida Marques welcomed the case-by-case and medium-term approach, coupled with increased ownership, stating that it equips member states to prevent austerity policies. The revised rules allow countries with excessive borrowing to reduce their debt by an average of 1% per year if it exceeds 90% of GDP and by 0.5% per year on average if the debt ranges from 60% to 90% of GDP.
Countries with a deficit above 3% of GDP are now required to halve it to 1.5% during periods of growth, establishing a safety buffer for challenging times. The consideration of defense spending in assessing a country’s high deficit is a response to Russia’s invasion of Ukraine. The new rules grant countries seven years, up from four, to cut debt and deficit, starting in 2025.
Notably, a member state with excess debt is not obliged to reduce it to under 60% within the seven-year period, as long as it demonstrates a plausible downward path. Formal endorsement of the preliminary deal reached on Saturday by EU countries and the European Parliament is necessary before it can take effect next year.
