The EU debt rules have been suspended since Corona. From 2024 they should take effect again, but many states consider them too strict. The EU Commission has now presented reform plans that have met with little enthusiasm in Germany.
The EU Commission has presented its plans for a reform of the European debt rules. The core issue is that highly indebted countries should be given more flexibility to reduce irregular debt. Instead of uniform guidelines for all states, the authority is using individual methods for each country to reduce debt and deficits in the long term, as can be seen from a reform proposal that has now been presented.
In the future, the EU countries with excessive budget deficits and debt levels should generally improve their values within a period of four years, in exceptional cases within seven years. In addition, measures are to be taken to ensure that there is no relapse to higher deficits and debt levels in the medium term. According to the EU Commission, there should be no fixed numerical specifications for mining.
Lindner: Clear rules are needed
EU countries and the EU Parliament must now negotiate the proposed reforms. It is still unclear whether the reform proposals are acceptable to the federal government. Germany had spoken out in the months-long debate about new rules for relatively strict minimum requirements for debt reduction.
Federal Finance Minister Christian Lindner warned again this week that the requirements would be relaxed. “We have to make sure that we have financial buffers for possible crises in the future.” Clear rules are needed, and enforcement is also crucial, according to the FDP politician.
Reform must come before the end of this year
Because of the corona pandemic and the consequences of the Russian attack on Ukraine, debt has skyrocketed worldwide. For many EU countries, the previous requirements no longer seem up-to-date and can hardly be achieved. That is why the set of rules – the so-called stability pact – is now to be revised for the fourth time.
The rules have been suspended since 2020, but should come into effect again from the beginning of 2024. That is why the EU has to agree on a reform this year, which is considered difficult.
France, Greece, Italy, Portugal and Spain are among the particularly highly indebted countries in the EU. Germany, too, is currently above the actual debt limit in the EU of 60 percent in relation to economic output.
Germany will miss the Maastricht targets again in 2023
The general government deficit in Germany is expected to again exceed the so-called Maastricht target of a maximum of three percent of economic output in the current year. According to the German stability program adopted by the federal cabinet, the federal government expects a mathematical minus of around 4.25 percent for the federal, state, local and social security funds in 2023. However, according to the Federal Ministry of Finance, the actual value is likely to be lower.
The federal government plans for Germany to return “after three exceptional years” to the “regular credit limit of the debt rule”. This should ensure the ability to act in terms of financial policy in the long term, said government spokesman Steffen Hebestreit.