2023-12-20 20:09:00
These rules should allow less brutal adjustments for countries in difficulty. The Twenty-Seven have agreed on a relaxation of European budgetary rules, which must guarantee the recovery of public finances without compromising investments, the Spanish Presidency of the Council of the European Union (EU) announced on Wednesday 20 December. .
EU finance ministers approved “a new economic governance framework that guarantees stability and growth, with balanced, realistic rules adapted to present and future challenges”, the Spanish Presidency welcomed X.
The reform intends to modernize the stability pact, a “budget corset” created at the end of the 1990s which limits the public administration deficit for each country to 3% of GDP and the debt to 60%.
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“Historic agreement! »launched on X the French Minister of Finance, Bruno Le Maire. “This agreement provides for budgetary rules which encourage reforms, which leave room for maneuver for investments and which are adapted to the specific situation of each Member State”, underlined, for his part, his Dutch counterpart, Sigrid Kaag. From now on, “the rules must be better respected, which has too often been a problem in the past”she added.
Rification between France and Germany
The agreement was made possible by a rapprochement sealed Tuesday evening between France and Germany, long at odds on the subject. The indebted countries of southern Europe, like France, insisted on additional flexibilities in order to protect the investment necessary for the green transition and the military spending generated by Russia’s invasion of Ukraine . Conversely, the so-called countries « frugaux » of the North, behind Germany, demanded constraints to achieve effective debt reduction throughout the EU.
Time was running out to conclude the debates. The stability pact, deactivated at the beginning of 2020 to avoid a collapse in economic activity affected by the Covid-19 pandemic, then by the war in Ukraine, will be reactivated on January 1. A lack of agreement on the new rules before this date would have affected the credibility of the EU vis-à-vis the financial markets.
The Twenty-Seven now hope to conclude the legislative process before the European elections in June on this text which must still be negotiated with the European Parliament. The draft text provides for rules more adapted to the particular situation of each country. Budgetary trajectories would thus be both more realistic and better applied.
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Adjustment over at least four years
Concretely, Brussels is proposing that States present their own adjustment trajectory over a period of at least four years in order to ensure the sustainability of their debt.
Reform and investment efforts would be rewarded by the possibility of extending this budgetary adjustment period to seven years, so that it is less brutal. Above all, management would essentially focus on changes in spending, an indicator considered more relevant than deficits which can fluctuate depending on the level of growth.
In order to satisfy Germany, however, it is planned that all countries with excessive deficits will be forced to make a minimum effort to reduce the deficit ratio by 0.5 points of GDP per year. Paris, however, obtained from Berlin a relaxation of this effort over 2025-2027: over this period the increase in the cost of debt linked to high interest rates will be taken into account. “This transitional flexibility will allow us to achieve our investment objectives”says the French Ministry of Finance.
Excluding the procedure for excessive deficits, Germany obtained the addition of a structural public deficit objective (excluding the impact of the economic situation) at 1.5% of GDP assigned to all Member States, in order to preserve a margin of safety. compared to the 3% ceiling.
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To achieve it, an adjustment of at least 0.4 points of GDP per year will be required, which can be reduced to 0.25 points in the event of reforms and investments. In addition, the debt will have to fall by 1 point per year on average over four or seven years. Compared to the old rules, “the deficit objective is less restrictive, the pace of reaching it is more progressive and rewards investment”we argue in Paris.
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