Brussels will force a fiscal adjustment of 0.5% of GDP to countries with excessive debt and deficit

2023-04-26 12:12:38

The single tax size for the countries of the European Union (EU) is over. Brussels has presented this Wednesday its proposal for the reform of fiscal rules, with which it wants to rein in countries whose debt and public deficit exceed 60% and 3% of their GDP, respectively. These roadmaps will be designed according to the average of each member state and in collaboration with the national authorities, which must commit to a fiscal adjustment of 0.5 points per year until the objectives set by the Community Executive are met. In Spain, this adjustment would be equivalent to 6,000 million euros per year.

After the economic crisis caused by the pandemic and the ‘shock’ caused by the war in Ukraine, the European Commission will reactivate the Stability Pact in 2024, with which procedures will be reopened against those countries that present an excessive public deficit. However, Brussels is aware that it is necessary to modify these rules and move towards a “more gradual” model, which ensures sustainable economic growth. Thus, it hopes to approve the legislation this year, so that it can start talks with European countries in 2024 and put the new tax rules in place in 2025.

The national adjustment programs will last four years, although they may be extended up to 7 in countries that present “significant debt challenges”, provided their governments commit to certain reforms and investments. Spain, which closed 2022 with a deficit of 4.8% of GDP, is among the countries with the greatest budgetary imbalance in the EU. In addition, Brussels has recently included the country on its “high risk” list due to its high level of debt, which at the end of the year remained at 113.2%. According to the Brussels initiative, Spain should reduce its deficit and debt by 6,000 million euros a year, the equivalent of 0.5% of its GDP.

Contacts with the Twenty-seven have led Brussels to include certain safeguards in its initiative. Thus, the debt at the end of the set period must be less than at the beginning, with a reduction target of 0.5% each year, and “it must remain on the reduction path for ten years without carrying out other adjustment policies” , details the text. This point has been included at the request of Germany, which has pushed for the inclusion of specific and quantifiable debt and deficit adjustment targets. Just yesterday, its finance minister, Christian Lindner, defended in an article in the ‘Financial Times’ the German proposal that called for a 1% debt reduction for the most indebted countries.

The Brussels proposal also includes escape clauses that will allow “slight deviations in specific situations.” In case of activation, the European Council will have “a clear role” in this decision, which will always be temporary.