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Saturday, February 24, 2024

EU Council Parliament to reform fiscal regulations to promote sustainability

This provisional political agreement on the reform of the EU’s economic governance framework aims to achieve several key objectives. The primary goal is to ensure sound and sustainable public finances across all member states. The reform also seeks to promote sustainable and inclusive growth by encouraging reforms and investment.

According to Belgian finance minister and Council negotiator Vincent Van Peteghem, the new rules will significantly enhance the existing framework and ensure effective and applicable rules for all EU countries. This agreement aims to safeguard balanced and sustainable public finances, strengthen the focus on structural reforms, and foster investments, growth, and job creation throughout the EU.

Importantly, the Council and Parliament have agreed to maintain the overall objective of reducing debt ratios and deficits in a gradual, realistic, sustained, and growth-friendly manner. Additionally, this reform ensures the protection of reforms and investment in strategic areas such as digital, green, social, and defense.

Overall, this agreement represents a significant step towards improving the economic governance framework of the EU and ensuring financial stability and sustainable growth across member states.

The reform of the EU’s economic governance framework includes provisions to address macroeconomic imbalances and allow for counter-cyclical policies. Member states will still be required to submit national medium-term fiscal structural plans as part of their obligations.

In cases where government debt exceeds 60% of GDP or the government deficit exceeds 3% of GDP, the Commission will provide a “reference trajectory” to member states. This trajectory will guide them on how to ensure that by the end of a four-year fiscal adjustment period, government debt is on a downward trajectory or remains at prudent levels over the medium-term.

The new rules also aim to encourage structural reforms and public investments for sustainability and growth. Member states can request an extension of the four-year fiscal adjustment period up to a maximum of seven years. This extension will be granted if certain reforms and investments are carried out to improve resilience, growth potential, fiscal sustainability, and address common priorities of the EU.

These measures demonstrate a comprehensive approach to balancing fiscal discipline with the need for flexibility and supporting long-term sustainability and growth within the European Union.

The reform of the economic governance framework in the EU includes various objectives such as achieving a fair, green, and digital transition, ensuring energy security, strengthening social and economic resilience, and, where necessary, building up defense capabilities.

However, it’s important to note that the provisional political agreement on the preventive arm of the economic governance framework is still subject to approval. It will need to be reviewed by the Council in the committee of permanent representatives and by the Parliament economic affairs committee before a formal vote takes place in both the Council and the Parliament.

This process ensures that the agreement undergoes thorough scrutiny and democratic decision-making before it is officially implemented. l

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