Breakthrough in negotiations: new EU debt rules ready for Ems-Chemie decision with decline in turnover and profit in 2023

There is agreement in the EU on new rules for budget deficits and government debts. Representatives of the European Parliament and the governments of the Member States successfully concluded long negotiations on Saturday evening.

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

In particular, the plans provide that greater account will be taken of countries’ individual situations when setting EU targets for reducing excessive deficits and debt. At the same time, there should be clear minimum requirements for reducing the debt ratios of highly indebted countries. The EU finance ministers already agreed on this at the end of this year, but negotiations with the European Parliament were still necessary.

Debt and deficit criteria

In principle, there is a rule in the EU that the debt level of a member state may not exceed 60 percent of economic production. In addition, it is important to keep the government’s financing deficit – that is, the difference between the income and expenditure of the government budget, which is mainly covered by loans – below three percent of gross domestic product (GDP).

Critics have long viewed the existing rules for monitoring and enforcing these requirements as too complex and strict. Due to the Corona crisis and the consequences of the Russian attack on Ukraine, it was recently completely suspended. Especially in 2020, deficits in almost all EU countries were well above three percent.

Improvements made

The agreement now reached was based on reform proposals from the European Commission, which were mainly criticized by the German government because they would excessively weaken the so-called Stability Pact. The governments of the EU countries have therefore agreed on a number of changes after months of negotiations.

To improve predictability and fairness, the targets for Member States must meet two “safeguards”. A measure of debt sustainability aims to ensure that the government debt ratio falls by a minimum annually. The protective measure for so-called deficit resilience is about creating a safety margin that is below the deficit reference value of three percent laid down in the treaty. States should therefore not exhaust the three percent in order to have larger buffers in the event of crises.

The aim is still for states to achieve an annual structural improvement of at least 0.5 percent of GDP if they exceed the three percent deficit limit.

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

MPs praise the compromise

German SPD members Joachim Schuster and Gaby Bischoff praised the agreement as a good compromise. “Compared to the old rules, the new obligation to reduce debt has been significantly reduced. The reduction targets will be a burden for highly indebted countries, but they are more realistic and offer a little more room for action,” Schuster said. Bischoff spoke of an important “contribution to the strengthening of social Europe”.

German CSU MEP Markus Ferber explained that the new set of rules provides more clarity and places the economic and monetary union on a solid foundation. The agreement will return to responsible EU fiscal policy. The old Stability and Growth Pact had many weaknesses and many loopholes.

For the reform to take effect, the agreement must be confirmed by the EU Council of Ministers and the plenary of the European Parliament. As a rule, this is a formality. (saw/sda/dpa)