Tough negotiations

New debt rules for the EU are ready for decision

The debt reduction of individual EU states is to become more flexible. However, the stability of the Union is to be maintained with the help of important protective mechanisms.

(Bild: Olga Yastremska, New Africa, Africa Studio - stock.adobe.com)

On Saturday night, representatives of the European Parliament and the governments of the member states reached an agreement on new debt rules for the EU. The final decision should only be a formality. During the tough negotiations, a compromise was reached between those countries that insisted on a softening of the rules and the advocates of a stricter course - including Austria.

The agreement will significantly improve the Stability and Growth Pact and ensure effective and applicable rules for all EU countries, explained Belgian Finance Minister Vincent Van Peteghem on behalf of the Belgian Council Presidency. 

In principle, there is a rule in the EU that the debt level of a member state may not exceed 60 percent of economic output. In addition, the general government deficit - i.e. the difference between the income and expenditure of the public budget, which is primarily covered by loans - must be kept below three percent of gross domestic product (GDP).

Debt rules suspended due to corona and the war in Ukraine
Critics have long considered the previous set of rules for monitoring and enforcing these requirements to be too complicated and too strict. Due to the coronavirus crisis and the consequences of the Russian attack on Ukraine, it was recently even suspended altogether. In 2020 in particular, deficits in almost all EU countries were well above the three percent mark.

During the coronavirus pandemic, the Commission was forced to suspend the EU debt rules.

(Bild: APA/ROLAND SCHLAGER)

The current reform plans include taking greater account of the individual situation of countries when setting EU targets for reducing excessive deficits and debt. At the same time, there are to be clear minimum requirements for the reduction of debt ratios for highly indebted countries.

Flexible repayment period for credible restructuring plans
It is also envisaged that countries in breach of the three percent deficit limit should achieve an annual structural improvement of at least 0.5 percent of GDP. However, opponents of very strict rules insisted that the increase in interest payments should also be taken into account. If member states present credible reform and investment plans that improve resilience and growth potential, it should also be possible to extend the debt reduction period.

Magnus Brunner, Minister of Finance (ÖVP)

(Bild: REUTERS)

The agreement that has now been reached was based on reform proposals from the EU Commission, which had, however, been criticized by Germany in particular as being too far-reaching a weakening of the Stability Pact. Austria's Finance Minister Magnus Brunner also advocated "strict, enforceable and clearly defined debt rules". After months of negotiations, the governments of the EU member states therefore agreed on a number of changes.