The European Union (EU) has agreed on new common rules for budget deficits and national debt. After a long period of negotiations, representatives from the EU Parliament and the governments of member states reached a successful conclusion last Saturday. The new Eurostat rules will take into account the individual situation of countries more than previous agreements.
Highly indebted countries will be given clear minimum requirements for reducing debt ratios, as agreed upon by finance ministers of EU member states. However, negotiations with the European Parliament were deemed necessary to finalize this agreement.
The EU generally has a rule that the debt level of a member state must not exceed 60% of economic output, and the general government financing deficit should be kept to a minimum of three percent of the respective gross domestic product (GDP). In 2020, deficits in almost all EU countries were much higher than the three percent mark due to the Corona crisis and the consequences of Russia’s attack on Ukraine. A new plan has been introduced that will enforce annual fines on states that do not meet this limit. Critics have long viewed existing set of rules for monitoring and enforcing these requirements as too complicated and strict.
Members from Germany’s government have primarily criticized this new plan as excessively weakening what is commonly referred to as the Stability Pact. The agreement still needs to be confirmed by both the EU Council of Ministers and plenary session of European Parliament before it can come into effect, but it is considered a formality at this point.