Reform of the stability pact coming: EU wants to suspend debt targets until 2024

After the corona pandemic, the Ukraine war is also putting a heavy economic burden on European countries. The EU Commission is therefore proposing that the debt criteria for the EU states should not be reinstated until 2024. Hardly any country would currently meet the criteria.

The strict debt regulations in the European Union are to remain suspended for another year in view of the Ukraine crisis. This Monday, the EU Commission proposed that the so-called Stability and Growth Pact should not be fully reinstated until 2024. The Brussels authorities said the reason for this was the high level of uncertainty due to the war in Ukraine, high energy prices and bottlenecks in the supply chains. At the same time, countries should control their spending.

“Fiscal policy should move from universal support during the pandemic to more targeted measures,” said Economy Commissioner Paolo Gentiloni. The debt and deficit rules were suspended because of the Corona crisis and should actually apply again from 2023. After the summer, the EU Commission wants to present concrete proposals for a reform of the pact, which could then come into force in the course of next year.

Eurozone finance ministers, who are meeting in Brussels, are expected to comment on the proposal in the afternoon. The EU Commission does not expect resistance from Germany, Austria or other countries that are considered frugal, as EU officials and diplomats announced in advance. Acceptance of the proposal requires unanimity among member countries.

The Stability and Growth Pact stipulates that EU countries should not borrow more than 60 percent of economic output. Budget deficits are to be capped at 3 percent of gross domestic product (GDP). Many countries exceed these limits, mainly because they had to take on large debts to support the economy during the corona pandemic. Most recently, the EU Commission assessed the development of government budgets as positive. The average debt ratio will fall to 87 percent this year, compared to 90 percent last year, according to the agency’s spring forecast. The average deficits are expected to drop from 4.7 percent to 3.6 percent of economic output. However, the EU Commission had to drastically adjust its growth forecast because of the war in Ukraine, from 4 to 2.7 percent for this year.

The proposal will now be presented to EU countries. It is due to be the subject of a meeting of finance and economy ministers in Brussels on Tuesday, but no decision is expected just yet.

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