After being suspended due to the Covid-19 pandemic and a long political battle within the euro area, the revised economic governance framework aims to ensure a better balance between debt reduction and investments and reforms across the EU.
ADVERTISEMENTNew EU fiscal rules entered into force on 30 April – but what are the next steps?
By 21 June, the Commission will provide technical guidance to member states. It will also decide whether to launch its corrective instrument, the excessive deficit procedure (EDP), for each country.
So far, only Romania has an ongoing EDP, but more member states could soon follow. Even those that have seen an increase in public spending driven by a surge in defence investments, although this will be a relevant factor to be taken into account when deciding whether to open an EDP.
Following the Commission's technical guidelines, member states will then have to prepare their national medium-term plans, detailing how they're going to reduce debt ratios and deficits or keep them at prudent levels while ensuring key investments.
Under the new framework, countries will have to respect the 3% of GDP deficit threshold and keep public debt below 60% of GDP.
For some countries, these thresholds will require more adjustment than for others.
According to the latest Eurostat figures, eleven countries recorded deficits above 3% of GDP last year, including Italy (-7.4%), Hungary (-6.7%), Romania (-6.6%) and France (-5.5%).
And thirteen member states had government debt ratios above 60% of GDP, including Greece, Spain and Belgium.
In the event of non-compliance, eurozone countries will face fines of up to 0.05% of GDP, which will accumulate every six months until effective action is taken, while others will have to deal with the corresponding reputational risks.
The above-mentioned national plans must be submitted by 20 September 2024 and will not be implemented until 2025, after the Commission has assessed the roadmap and the Council has endorsed it.
Once these steps are met, member states will have a four-year adjustment period, which could be extended to a maximum of seven years if underpinned by a commitment to investment and reform.
Lastly, by 30 April each year, member states must submit an annual progress report with a focus on deviations from the net expenditure path.
