The EU has set off new rules for the fiscal corset that have been reactivated this year

A new marathon negotiations, which ended at two in the morning this Saturday, have allowed the EU to close one of the key files for the end of the legislature: the new financial rules that will from now on control the economic discipline of the 27. The fiscal discipline was undone by the pandemic, when the priority for governments was to spend extensively to get out of the crisis. The suspension of the Stability and Growth Pact was later maintained when the war broke out in Ukraine to address economic and social consequences such as inflation and the energy crisis on the continent.

27 decided to abolish the open bar in 2024, but there was also a certain consensus that the current rules were not valid. The objectives are the same: a maximum of 60% debt to GDP and 3% deficit. What changes is the way you reach them. Previous fiscal rules were, in practice, unenforceable and unenforceable.

The new system will be based on annual expenditure adjustment plans that each country will design and agree with the European Commission for four years, but which can be extended to seven years if it is justified that there are significant reforms and investments in relation to the priorities . As to the ecological or digital transition of the European Union. These cases and the measures adopted in the defense will be kept in mind while studying the opening of excessive loss files to non-compliant parties. Schemes may be reviewed “if there are objective circumstances which prevent their application” and also if the government changes.

Throughout the negotiations, a series of safeguards have been introduced that significantly limit the margin, as demanded by Germany and the frugal countries. Brussels made the initial offer by proposing a reduction of 0.5% per year for all member states that are above the threshold and then governments making a minimum debt reduction of 0.5% if above 60% and a 1% reduction if above that. Started. 90%. The government estimates Spain is at 108.1%. In the final round of talks, the 27 also included that countries with a deficit below 3% should aim to reduce it to 1.5% to deal with future crises. That was one of the last elements Germany demanded.

“The country with the excess debt will not be obliged to reduce it below 60% at the end of the period of years covered by the plan. “At the end of the agreed period, the country must have a debt that is considered to be in appreciable decline,” the European Parliament says in a statement on the agreement, which also states that the Council can grant a deviation to a member state. ” From the expense path. When extraordinary circumstances beyond its control have a significant impact on its public finances. “A time limit will be specified for such deviation, but this period may be extended if exceptional circumstances persist. The extension will be for a maximum of one year and may be granted more than once,” the statement said.

Although fiscal discipline will once again regulate the EU economy, these rules are more economical than those applied during the financial crisis, for example. The previous framework established that one-twentieth of the debt would have to be reduced each year, which would mean financial suffocation for the most indebted countries like Spain. Furthermore, the sanction system was so stringent that it was never implemented (with restrictions of 0.2% of GDP). Now it will be 0.05% every six months.

Negotiations within the 27 were very difficult and the Council arrived with little scope for negotiation with the Parliament and the European Commission. This week the appointments have intensified and this Friday they lasted all day and the last phase focused on the flexibility of social spending, one of the demands of the European Parliament. “The Commission will weigh both the application of the principles of the European Pillar of Social Rights and the risks of social convergence. Member States must ensure that their national plans also contribute to social objectives. Furthermore, the cyclical elements of spending on unemployment benefits will not be taken into account when calculating government spending,” the European Parliament notes.

Sources in the talks highlight that the atmosphere has been “constructive” as all parties knew they had to close the deal this week in order to reach ratification by the Council and the European Parliament before the legislature ends in April. The rule will come into force once published in the EU Official Journal and the first adjustment plan will have to be presented in September 2025.

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