EU Finance Ministers Agree on New Debt Rules

Finance ministers of the European Union countries have agreed on plans to reform the Union’s debt rules, several diplomats told dpa after a videoconference of finance ministers.

The revised rules are expected to better take into account the individual fiscal situations of each country, the diplomats said to dpa. However, the plans still need to be adopted by member states and negotiated with the European Parliament.

The new fiscal rules are both more realistic and effective, wrote German Finance Minister Christian Lindner in a post on X.

– They combine clear figures for lower deficits and a declining debt ratio with incentives for investment and structural reforms – said Lindner, adding that this would strengthen stability policy.

The agreement among the 27 EU countries was preceded by a Franco-German proposal that German Minister Lindner and his French counterpart Bruno Le Maire agreed upon on Tuesday evening. The two ministers have been at odds for some time in the discussion about the rules. An agreement of the entire bloc without understanding between Paris and Berlin is considered almost impossible.

According to information from German government circles, the proposal from neighboring countries included more effective safety nets for reducing budget deficits and public debt than previously. At the same time, better attention should be paid to investments and structural reforms of member states.

On Tuesday evening, Le Maire wrote on X that the Franco-German agreement is excellent news for Europe, which guarantees healthy public finances and investments in the future.

European finance ministers have been trying for months to reach a compromise on the reform of the Stability and Growth Pact, based on the European Commission’s proposal in April.

The European Commission’s proposal would provide more flexibility for highly indebted countries in reducing debt and budget deficits due to the consequences of the coronavirus crisis and the war in Ukraine.

The proposal has proven controversial for EU capitals. Germany, for example, has sought strict and standardized minimum requirements, which France opposed.

The current EU rules on public debt limit total borrowing to a maximum of 60 percent of a country’s total gross domestic product (GDP) and require that the annual budget deficit remains below three percent of GDP.

The rules have been suspended until 2024 due to the coronavirus pandemic and the consequences of the Russian invasion of Ukraine, crises that have created significant new spending priorities for European governments.

Until now, countries have typically had to repay at least five percent above the 60 percent threshold each year.

A return to existing rules is seen as a threat to Europe’s economic recovery as it would force many countries to make deep budget cuts.