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EU legislators will approve new spending regulations

Apr 24, 2024 | Health | 0 comments

The European Union aims to steer towards healthier public finances following the anticipated approval of reforms to the bloc’s spending rules in the European Parliament on Tuesday.

After two years of negotiations, Brussels is set to overhaul its budget rules, which have created a divide between fiscally conservative states and the most indebted nations in the bloc.

EU negotiators finally reached an agreement on the reform in February. Now, the European Parliament must give its final green light. It will become official once the EU’s 27 member states endorse the text.

Once implemented, the new rules will compel governments to rein in national spending yet provide greater flexibility for investment in critical areas like green and digital transitions and defence.

The old rules had been suspended between 2020 and 2023 to help the European economy weather the Covid pandemic and then Russia’s assault on Ukraine, which sent energy prices soaring.

There was widespread agreement that a return to the old rules was only feasible with practical changes despite public debt ballooning across the bloc.

Known as the Stability and Growth Pact, the rules stipulate that a country’s debt must not exceed 60 per cent of gross domestic product and that its public deficit must be no more than three per cent.

These goals remain in place, though there was fierce debate over how much the limits should be relaxed to allow more room for investment.

“This reform constitutes a fresh start and a return to fiscal responsibility at the same time,” said Markus Ferber, an EU lawmaker for the parliament’s biggest centre-right group, the EPP.

“The old fiscal rules had many weaknesses and loopholes and suffered from almost non-existent enforcement,” he added.

‘Economic disaster’

The new text provides looser fiscal rules adapted to each state, allowing big spenders a slower route back to frugality.

The tailor-made approach means each country presents its own adjustment trajectory to ensure debt sustainability. This gives them more time to undertake reforms and investments and allows a less painful return to fiscal health.

The new rules will apply to member states’ 2025 budgets.

Germany and its “frugal” allies pushed to impose a quantifiable minimum effort to reduce debt and deficits, but critics have slammed its complexity.

Left-wing groups say the new rules are a tool for imposing austerity on Europe.

In an open letter on Monday, Belgian, French, Italian, and Spanish trade unions criticized rules they said were “unfit for (the) future.”

“This agreement, forced by the austerity approach of some European capitals, will require member states to reduce their debts rapidly and in ways that are economically and socially unsustainable: this will mark a return to austerity,” they warned.

The Greens group in the parliament warned the reform was an “economic disaster” and said it would limit public expenditure on the green transition.

“It is clear that private investment will not be able to pay for the transition on its own, especially if there are no public funds to offer incentives, and we cannot leave the costs of the transition to citizens alone,” the group said.

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