The European Commission has presented its plans for a reform of the European debt rules. At its core are individually negotiated reduction paths for EU states with excessively high budget deficits and debt levels. In the future, these are to improve their values over a period of four years, and in exceptional cases within seven Jahren.Au of which measures are to be taken to ensure that there is no relapse into higher deficits and debt levels in the medium term.
Instead of uniform requirements for all countries, the authority relies on individual ways for each country to reduce debt and deficits in the long term, according to a reform proposal presented on Wednesday. "We need fiscal rules that meet the challenges of this decade," said Commission President Ursula von der Leyen. It was still unclear whether the reform proposals were acceptable to the federal government.
The rules impose upper limits on EU states. According to the proposal, the objectives of the so-called Stability and Growth Pact to limit debt to a maximum of 60 percent of economic output and to keep budget deficits below 3 percent remain in place. However, there will no longer be uniform guidelines, especially for achieving the 60 percent target: Individual plans are intended to give countries with excessive debt more time and flexibility. The monitoring of implementation is also to be simplified. Violations should be easier to punish. The member states and the EU Parliament must now negotiate the proposed reforms.
"We live in a very different world than we did 30 years ago. Different challenges, different priorities," said Commission Vice-President Valdis Dombrovskis. The new rules would have to reflect these changes. "The EU also faces a massive need for reform and investment for the green and digital transitions, to strengthen our social and economic resilience and to secure long-term energy supplies."
Under the proposal, the highly indebted countries would have four years to meet the deficit target and reduce their debt. As long as the deficit is above three percent of gross domestic product, they must reduce their debt-to-GDP ratio by half a percentage point annually.
Germany against softening
In the months-long debate on the new rules, Germany had called for such minimum requirements. However, according to the Ministry of Finance, countries with high debt-to-GDP ratios should have to reduce them by at least one percentage point annually. For countries with medium debt-to-GDP ratios, it should be half a percentage point. Positions on debt rules vary widely from one EU country to another.
Federal Finance Minister Christian Lindner had warned again this week against a softening of the requirements. "We need to make sure that we have financial buffers for possible crises in the future." Clear rules are needed, and enforcement is crucial. In the past, there have been repeated violations without any noticeable consequences.
Due to the Corona crisis and the consequences of the Russian attack on Ukraine, the rules have been temporarily suspended. They are to apply again from 2024. So far, states have normally had to repay five percent of debts above the 60 percent mark per year. For highly indebted countries such as Italy or Greece, this would be devastating for growth. Even before the pandemic, the rules were often disregarded - even by Germany.
The so-called twentieth rule would be omitted. So far, this has stipulated that euro countries with a debt ratio of over 60 percent of economic output must reduce one-twentieth of the difference between 60 percent and the actual ratio every year. This is particularly overwhelming for highly indebted EU members such as Greece, Portugal and Italy.