The EU Commission published its proposal to reform the Union’s financial rules. The member states’ debt burden has increased as a result of the corona crisis and the war in Ukraine.
BRUSSELS The EU Commission has issued its proposal to renew the Stability and Growth Pact, which regulates the budgets of the member states.
The goal is to get indebted for a sustainable career, taking into account the investment needs of the member countries. Efforts are also being made to simplify complex financial rules.
– We want to strengthen public debt sustainability through a gradual and realistic stabilization of public finances and promote sustainable and inclusive growth, Vice-President of the Commission Valdis Dombrovskis said at a news conference in Brussels.
The reform is based on the development of recent years, which has led to an increase in public debt in most member countries. The EU has allowed public debt and budget deficits to grow, citing the effects of the corona crisis and the war in Ukraine.
The debt ratio exceeds the EU target
The average debt ratio of the member countries has risen to 84 percent of the gross national product, which exceeds the EU’s target. According to it, public debt should not exceed 60 percent.
Finland’s debt ratio also exceeds the requirements of the Stability and Growth Pact.
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 national product.
For example, for heavily indebted Italy, this would mean that the debt ratio would have to be reduced by several percentage points every year. This is generally considered unrealistic.
We are gradually returning to a sustainable career
The Commission proposes that a sustainable debt career could be returned to gradually, within the framework of periods lasting four years. In practice, this means that the debt ratio should be lower at the end of the review period.
In addition to the public debt, the plans between the Commission and the member countries also take into account the economic reforms made by the member countries and investments in line with the EU’s goals.
The Commission will draw up a joint plan with all member countries whose debt ratio exceeds 60 percent of the gross national product. Finland would therefore also have to make a joint plan with the Commission.
– This is a big change compared to the currently applied “one-size-fits-all model”, Dombrovskis stated.
The EU member states still have to approve the Commission’s proposal. Germany in particular has been concerned that the reform does not encourage indebted member countries to address problems.