Finance: EU Parliament votes on new debt rules

Finance: EU Parliament votes on new debt rules

After a long debate, a compromise on new rules for budget deficits and national debt has been reached since February. However, this is anything but uncontroversial. Will the MPs give him a nod?

The European Parliament is voting today on new rules for budget deficits and national debt in the EU. Accordingly, the individual situation of countries should be taken more into account when setting EU targets for reducing excessive deficits and debts. At the same time, the new plans provide, among other things, clear minimum requirements for reducing debt ratios for highly indebted countries.

Representatives of the European Parliament and the governments of the member states agreed on the compromise at the beginning of February after a long debate. After the vote in the parliamentary plenary session, the EU states also have to confirm the new rules. This is usually a formality and is scheduled for next week.

What should apply in the future

The current set of rules for monitoring and enforcing debt requirements has long been viewed by critics as too complicated and too strict. The basic principle in the EU should continue to be that the debt level of a member state must not exceed 60 percent of economic output. In addition, it is important to keep the national financing deficit – i.e. the gap between the income and expenditure of the public budget, which is primarily covered by loans – below three percent of the gross domestic product (GDP).

In addition, protective measures are planned: highly indebted countries (debt levels of over 90 percent) should have to reduce their debt ratio by one percentage point annually, and countries with debt levels between 60 and 90 percent by 0.5 percentage points. Germany in particular had insisted on this condition.

Opponents of very strict rules ensured that the EU Commission responsible for supervision could take the increase in interest payments into account during a transitional period when calculating adjustment efforts. If Member States submit credible reform and investment plans that improve resilience and growth potential, the period for debt reduction should also be extended.

Planned rules are controversial

Opinions on the compromise reached vary. For example, the Belgian EU Council Presidency announced that the new rules would help achieve balanced and sustainable public finances and carry out structural reforms. From his point of view, the positive aspects outweigh the negative aspects, said CSU MEP Markus Ferber. The EPP group in Parliament wants to agree.

Critics, however, emphasized that the rules cut off investments in areas such as climate protection or social issues. An analysis by the European Trade Union Confederation (ETUC) and the New Economics Foundation (NEF) came to the conclusion at the beginning of April that if the planned rules were adhered to, only Denmark, Sweden and Ireland would be able to afford necessary expenses from 2027 onwards . It was said that investments would also be severely inhibited in Germany.

The Greens in the European Parliament are also critical of the compromise and call the planned reform a “missed opportunity”. The main thing is the impact on the willingness to invest, said German Green MP Rasmus Andresen.

What are the consequences?

If the upper limits are exceeded, debt criminal proceedings, so-called deficit proceedings, can be initiated. A country must then take countermeasures to reduce debt and deficit. This is primarily intended to ensure the stability of the Eurozone.

The criminal proceedings were recently suspended due to the Corona crisis and the consequences of the Russian attack on Ukraine. In 2020 in particular, the deficits in almost all EU countries were well above the three percent mark. The deficit procedures should be able to be reopened from this spring. According to the latest data from the EU statistics office Eurostat, several countries broke the rules last year.

The agreement now reached to reform the rules dating back to the 1990s was based on proposals from the EU Commission. She criticized the federal government in particular for weakening the so-called Stability and Growth Pact too much. The governments of the EU states therefore agreed on a number of changes after months of negotiations.

Source: Stern

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