The hours of Friday passed without reaching an agreement between the negotiators of the European Parliament and the Council of the EU, of which Belgium holds the rotating presidency this semester. The white smoke occurred in the early hours of Saturday, after intense – although agile – negotiations that have given birth to an agreement for the new fiscal rules. According to this review, the definitive one, Spain would have to make an annual cut of about 15,000 million of debt to comply with the new economic governance framework.
The text agreed upon this weekend barely includes any variations with respect to the agreement sealed between the EU Economy and Finance Ministers last December. Then I do not know they spared efforts to reach a text balanced between the flexibility that France requested and the fiscal corset that I longed for Germany. The reform of the Stability and Growth Pact includes safeguards to reduce debt levels. Member States with a liability greater than 90% of GDP They must make an annual adjustment of 1%, and 0.5% for those Member States that are in a range between 60% and 90% of GDP.
Is he case of Spain, whose debt levels will stand at 107.5% in 2023, according to the autumn forecasts of the European Commission, to decrease to 106.5% in 2024 and remain at that figure in 2025. The latest updated data from January places the Spanish public debt at 1.57 billion euros, above that 90% threshold, so the Spanish Executive would be among those that must make a 1% adjustment.
The EU economic governance framework leaves behind old corsets which proved to be little applicable in practice. The previous Stability and Growth Pact established an annual debt reduction of one-twentieth per year for countries that exceeded 60% of GDP. Because there are two figures that do remain: that debt threshold that should not exceed 60% and 3% of GDP in the case of deficit. However, with the new fiscal rules, it will be necessary to create buffers against future crises and, to do so, achieve a deficit target of 1.5%. A condition with which in December pleased Berlin.
Fiscal rules were suspended in the pandemic in an attempt to give the EU leeway for spending to weather the economic blow. Such suspension, extended by the war in Ukraine, is coming to an end. Since January 2024, the fiscal rules have been in force again, although the European Commission considered this exercise as a transitional period in which to give Member States guidelines to comply with the new framework. Some guides that will arrive in spring and The 2023 figures will be taken into account.
It will not be until 2025 that this new Stability and Growth Pact will be put into practice, once the European elections have been held, a new Parliament has been formed and the positions of the community Executive.
There’s just one step left. The agreement between the EU Council and the European Parliament this weekend now only requires ratification by the two co-legislators. The times are tight, but they allow us to get push forward the reform before the European elections. This last step is usually formal and should not cause any problems for its approval before May.
The new fiscal rules were intended for a more realistic, applicable and less rigid renewal. With more room for investments and a certain aversion to discipline. The starting point of the European Commission is maintained, which proposes individualized plans for each country to four years, which will be extendable to seven years in the event that reforms and investments are committed that justify it. There is a change of perspective with respect to previous fiscal rules: the path of public spending will be taken into account to analyze the financial sustainability of each Member State.
This will be the reference that Brussels observes to open excessive deficit procedures to countries. Public debt and co-financing of EU programs will be excluded from the calculation of recurrent spending, which will create more incentives to invest. In addition, among the criteria to extend the adjustment plans from four to seven years includes compliance with the objectives of the European Pillar of Social Rights. With which the answer is given to the claims of the European Parliament greater flexibility for investments.
In addition, there will be fines for those countries that do not comply. Sanctions of reasonable amounts in order to ensure their implementation. The idea, as reported by the European Parliament, is that the new tax rules come into force soon, once published in the Official Journal of the EU. Taking into account that the first national plans of the Member States They must be submitted before September 20, 2025.