The representatives of the European Council and MEPs reached a preliminary deal late on Friday on the proposed reform of the budget rules, the Council announced. The main objective of the reform is to ensure sound and sustainable public finances, while at the same time promoting sustainable and inclusive growth in all member states through reforms and investments.
The Council and Parliament have agreed to uphold the overall reform objective of reducing debt ratios and deficits in a gradual, realistic, sustainable and growth-friendly way, while protecting reforms and investments in strategic areas such as digital, green, social or defence. At the same time, the new framework will provide adequate space for countercyclical policies and address macroeconomic imbalances.
The agreement also retains the obligation for member states to present national medium-term fiscal structural plans.
The Commission will present a “reference trajectory” of Member States where public debt exceeds 60% of gross domestic product (GDP) or where the public deficit exceeds 3% of GDP. The interim agreement provides for an optional and de facto preliminary dialogue between the Member States and the Commission beforehand.
The reference trajectory shows how Member States can ensure that by the end of a 4-year period of fiscal adjustment, public debt has taken a predictable downward path or will remain at reasonable levels over the medium term.
The Interim Agreement contains two safeguards that the reference trajectory must comply with. One is a debt sustainability safeguard to ensure that debt levels are reduced and the other is a deficit sustainability safeguard to ensure a margin of safety below a deficit of 3% of GDP, with the aim of creating fiscal buffers.
Based on the reference trajectory, Member States must then include net expenditure guidelines in their national medium-term fiscal structural plans, which must be approved by the Council.
The new rules will further encourage structural reforms and public investment for sustainability and growth. Member States will be able to request an extension of the four-year period of fiscal adjustment to a maximum of seven years if they carry out certain reforms and investments that improve resilience and growth potential and support fiscal sustainability and meet common EU priorities. These include achieving a just, green and digital transition, ensuring energy security, strengthening social and economic resilience and, where necessary, building defense capabilities.
The next steps in accepting the deal are for it to be approved by the Committee of Permanent Representatives of the Council and by the Committee on Economic Affairs of the EP. A formal vote will then follow in both institutions.
