Stability and Growth Pact should be relaxed: EU

The European Commission proposed a modernization of its rigid budgetary rules to better adapt the evolution of Member States’ spending to their level of indebtedness.

This is the initiative to reform the rules of the so-called Stability and Growth Pact, originally adopted in 1997 and which governs the debt levels of the bloc’s countries, although its rules are already considered obsolete and very difficult to apply.

Thus, the Commission proposed to maintain the two fundamental pillars of the Pact: deficit of public administrations limited to 3% of the national Gross Domestic Product (GDP) and a maximum debt equivalent to 60%, although it launched the idea of ​​a certain flexibility in the rest of the rules.

To promote investment, the Commission wishes to give the countries of the bloc a greater margin of maneuver in the policy to be implemented to correct excessive indebtedness.

In practice, the Pact’s rules were unrealistic and their strict application would set a path marked by almost destructive austerity.

In concrete terms, the Commission proposed for the future to define a reference budget trajectory for each State of the bloc for a period of four years, adapted to its financial situation.

The goal would be to credibly achieve a deficit that remains below 3% of GDP.

Next, each country would present its budget plan that would include proposals for reforms and investments, following the model of the recovery plans financed by the common European debt, considered a success.

Countries that commit to these reforms and investments could get an additional three-year extension to their adjustment path, that is, a total of seven years to get back to normal.

To accompany this greater flexibility, the Commission also seeks to implement more effective sanctions on non-compliant countries by reducing their amount, which could theoretically reach up to 0.5% of GDP.

The new fiscal rules would focus on debt reduction where it is high, based on plans defined by the member states, which must respect the conditions established by the European Union (EU),” said Commission Vice President Valdis. Dombrovskis.

“We want to put growth and stability on the same level,” said Economy Commissioner Paolo Gentiloni.