As Europe's economy recovers from the impact of the coronavirus epidemic, Brussels is resuming the politically contentious process of rewriting the EU's budgetary rules, which was put on hold in March 2020 to allow for more expenditure to mitigate the crisis' impact.
The disciplinary guidelines, known as the Stability and Growth Pact (SGP) compel members states to limit their deficits under 3 per cent and debt under 60 per cent of GDP. Several nations already exceed these limits by large margins.
The European Commission is keen on reaching a broad and permanent agreement on the new standards in the hopes of improving compliance with the legislation.
The new rules should be enacted before the current regulation's temporary suspension is slated to end, in 2023, giving governments sufficient time to plan their new budgets.
To sustain furloughed workers, avoid bankruptcies, and boost economic growth, countries have been spending beyond their means.
Government debt in the European Union currently accounts for 92.9 per cent of total GDP, with the same percentage rising to 100.5 per cent within the eurozone. The SGP laws, which went into effect in the late 1990s and were tightened after the Great Recession, have been panned for their strictness and inflexibility. This, combined with inconsistent implementation and biased enforcement, has caused numerous squabbles among EU nations.
The European Commission is keen to begin a new chapter with simpler rules that have been agreed upon by all parties. For the review, the leadership has set an ambitious but tough goal: to reduce public debt while generating revenue.
The tasks of raising this colossal amount of money must go hand in hand with an insistence to gradually reduce budget deficits and public debt, which was already alarmingly high before the pandemic as a result of the prolonged eurozone crisis.
Cutting down public debt will determine the EU's ability to respond to future economic shocks, said Valdis Dombrovskis, the Commission's executive vice-president told Euronews.
But new fiscal rules should promote positive economic development so that countries have more resources to decrease their debt levels.
Spain and France are pushing for realistic guidelines to ensure the downward path is not trodden at the expense of their citizens. They aim to have 5per cent and 4.8per cent deficit rates, respectively, next year.
"We made some calculations and found that some southern European countries would need to make an enormous fiscal adjustment in the order of 5-6per cent of GDP that rule, which is simply, I think, inconceivable. It's impossible that those countries would be able to make that. So, for this particular debt reduction rule, many, many countries will violate that,” Zsolt Darvas, an economic analyst at the Brussels-based Bruegel think tank, told Euronews.
Italy, Spain, France and their like-minded allies hope the crucial need for investment for the green transition will help advance their campaign for greater flexibility.