The European Union’s executive branch is proposing updates to its euro single-currency rulebook, as member nations face higher debt in the wake of pandemic, war, and economic stresses.
The EU commission moved yesterday to overhaul monetary guidelines, including requiring countries to limit deficits to 3% of gross domestic product, and their public debt to below 60% of GDP.
“Our common EU fiscal rules date back to the 1990s and we have since withstood major economic shocks,” European Commission Vice President Valdis Dombrovskis said. “We now face different challenges and economic priorities, and our rules need to reflect these changes.”
The central pillar of the overhaul, laid out by the commission, the EU’s executive branch, would see member countries design and present plans outlining their fiscal targets, measures they might use to address any imbalances, and the main reforms and investment they aim to undertake.
Key targets from the old ‘Stability and Growth Pact’ will remain, even though the rules were essentially suspended in 2020, following the Covid outbreak.
Individual national plans would cover at least four years and must be approved by the commission and the other EU member countries.
Should a country miss its targets, the commission would issue recommendations on a “technical trajectory” aimed at ensuring that debt is brought down, and that the deficit is brought back to, at most, 3% of GDP.
The aim is to ensure that debt is reduced by 0.5% each year and continues to decline longer term. The commission would permit “escape clauses” to be used in extraordinary circumstances, like a repeat of the pandemic or an extended war in Europe, by countries whose plans would become too onerous.
EU member countries and the European Parliament must now thrash out the proposals. The commission insisted that the overhaul is a “pressing priority,” and urged the parties to agree on the plan “as quickly as possible, so as to adequately respond to the challenges ahead.”