New economic governance rules [EU Legislation in Progress]

Written by Martin Höflmayr (1st edition).

On 26 April 2023, the European Commission published a package of three proposals to revise the EU’s economic governance framework: a regulation to replace the current preventive arm of the stability and growth pact (SGP), an amending Council regulation on the corrective arm of the SGP, and an amending Council directive to strengthen the role of independent fiscal institutions. The main proposal on the preventive arm is to be adopted through the ordinary legislative procedure with the Parliament and the Council as co-legislators.

The reform proposals are shaped by the trade-off between reducing higher and more dispersed public debt levels after several years of unprecedented fiscal challenges and the need for sustained public investment in the Union’s shared priorities. Stricter fiscal monitoring would ensure debt sustainability, based on a country-specific fiscal adjustment path anchored to a debt sustainability analysis framework. The Commission would negotiate a fiscal-structural plan bilaterally with Member States, with a minimum 4-year horizon; possible extension of the fiscal adjustment path to 7 years would provide an incentive to include investment and reform commitments. Greater political buy-in and better Member State ownership of the medium-term plan is also envisaged.

Both reference values – the 3 % deficit-to-GDP and 60 % debt-to-GDP ratios – would remain unchanged, the proposal introduces three additional safeguards: two numerical requirements over the agreed plan’s horizon and a minimum fiscal adjustment of 0.5 % of GDP per annum if a country is expected to be above the 3 % deficit ratio threshold in an excessive deficit procedure.

Versions

• May 2023: New economic governance rules (1st edition)

Next steps expected: Appointment of a rapporteur