Brussels, 26 April 2023 (TDI): European Union adopted several proposals to review the economic governance framework.
In a press conference Valdis Dombrovskis, Executive Vice President of the European Commission and European Commissioner for Trade, presented new fiscal rules.
In his opening remarks, he said that new rules for single markets were discussed. A great deal has changed since the EU drew its first fiscal policy rule in the 1990s. We are living in a really different world from 30 years ago. Now the EU has different challenges and different priorities.
He highlighted the current challenge of public debt, which has risen sharply since last year. The EU debt to GDP ratio has risen to 84%, which is roughly 2% higher than it has been in the past two decades. Today, some EU countries have a debt-to-GDP ratio that is way above 100%.
He further said that the EU also faces massive reform and investment needs for green and digital transformation to strengthen economic and social resilience and secure long-term energy supplies.
The Commissioner mentioned opportunities for the EU to reform fiscal rules. These reforms will generally help to reduce debt while also promoting investment and reform.
He said that above all the aim is to strengthen public debt sustainability through gradual realistic fiscal consultations and to boost sustainable and inclusive growth through ambitious reforms and investments.
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He mentioned about the wide consultation with EU institutions, governments, social partners, and many interested parties.
The Commission published its orientation for economic governance last November. Then last month, EU finance ministers agreed on several core elements to include and asked the Commission to consider some important elements.
He said that based on all the inputs received, our proposals received a balanced approach that will make the fiscal rule more effective.
He further explained that they are designed around four key areas simplicity, ownership, safeguards, and endorsements.
For simplicity, fiscal policy coordination would be based on a single indicator of government net expenditure. This indicator is observable and under government control.
Regarding ownership, the proposals suggest greater national ownership by providing more leeway to consider each country’s specific positions. Each member country should commit to a medium-term fiscal structure plan, which departs from the one size fits all approach. Greater national ownership should lead to greater compliance. If that is not enough, we can provide safeguards and enforcement.
Regarding safeguards, European member states are bound by certain EU rules that ensure transparency and equal treatment.
Lastly, enforcement rules are only effective if backed by credible enforcement. Therefore, the excessive deficit procedure remains unchanged. If countries fail to comply, they will face tighter fiscal requirements unless they implement the necessary reforms and investments to which they committed. The EU can also impose financial sanctions.