According to the EU Commission’s proposal, states’ indebtedness will also be monitored from the point of view of important investments in the future.
BRUSSELS The Stability and Growth Pact, which regulates the finances of the member countries, is being updated in the EU.
The reform aims, among other things, to loosen the requirements governing debt amortization. According to the current rules, the public debt must be reduced at an annual rate of five percent to the extent that the public debt of a member country exceeds 60 percent of the gross domestic product.
The commission estimates that the requirements required by the agreement to reduce the public debt are too challenging for the member countries affected by the effects of the corona crisis and the war in Ukraine.
In the future, the requirement to reduce the public debt below 60 percent would be waived. Instead, at the EU level, a country-specific review would be carried out, which would take into account the member countries’ medium-term goals regarding indebtedness and sustainable growth.
The focus would be on the plans submitted by the EU countries to the Commission, the aim of which is to bring the public debt and deficit to a sustainable level. The goal is for the rules to be simpler and more flexible from the point of view of the member states.
In addition to indebtedness, the plans would take into account the investment needs of the member states and reforms that could lead to economic stabilization. Member countries must report on the progress of the goals annually.
– Member States’ debt and deficit have increased, and their level varies greatly. New challenges, such as the green and digital transition and securing the supply of energy, require major reforms and investments from us in the coming years, vice-president of the Commission Valdis Dombrovskis says.
Member countries are divided into three groups based on debt
Presentation (you switch to another service) member countries would be divided into three categories depending on their debt level. Low-risk countries would count as member states where the public debt is less than 60 percent of the gross domestic product.
Countries with a debt level of 60-90 percent would be counted in the middle caste of the EU in terms of risks, and countries that exceed a debt level of 90 percent as high risk countries. Countries with a high debt level would therefore also be required to take stricter measures in the future compared to member states with a low debt level.
Finland’s public debt currently exceeds the 60 percent limit, which means that it is possible that Finland would face a more specific economic reason in the future.
The Stability and Growth Pact also regulates the public finance deficit. According to the EU Treaty, the deficit of the public finances should not be more than three percent. This requirement would also remain in the future.
Reforms of the Stability and Economic Pact must be approved unanimously in the member countries. So there is a political twist ahead that will last for months. According to the proposal, the new rules could enter into force from 2024.
During the corona crisis, the exception clause of the Stability and Growth Pact has been observed in the EU, according to which it is possible to flex the economic rules in exceptional situations.
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