Valdis Dombrovskis and Paolo Gentiloni presented today Wednesday the Commission’s proposals for the review of economic governance, in order to clarify the landscape after the period in which fiscal rules were temporarily suspended shortly after the start of the coronavirus pandemic in 2020to allow European Union countries to support their businesses and citizens with impunity.

The suspension was extended because the European Union then plunged into an energy crisis due to Russia’s invasion of Ukraine and inflation soared.

Now, the countries of the Union agree that the reins should be gradually tightened again, but in a different way than before, according to ERT. Finance ministers want to reach an agreement on the proposals before the end of this year so that the Stability and Growth Pact can be applied again from 2024, and certainly before the European elections.

The Commission’s proposals

Main goal of the European Commission’s proposals are strengthening the sustainability of public debt and promoting sustainable and inclusive growth in all Member States through reforms and investment.

The proposals are the result of an extended period of reflection and a broad consultation process, so that the final result is in the context of stronger national ownership with integrated medium-term plans, based on common rules of the European Union.

The cornerstone of these proposals will be the national medium-term fiscal-structural. In practice, member states will draw up and present plans that will set out their fiscal targets. These plans will be assessed by the Commission and approved by the Council on the basis of common criteria. And of course these plans will be monitored in terms of their execution.

The main difference from the previous scheme is that the budget management proposals will be made by the member states and not by groups of wise economists of the Commission, but the golden rule for a budget deficit not exceeding 3% of gross GDP and a maximum public debt in 60% GDP remains unchanged.

Discussion with differences

The discussion is just opening and will take place in the context of ECOFIN and not the Eurogroup. That is, it will be handled by the Swedish and Spanish presidencies successively until the end of this year. And yes, there are countries that want to contribute to the debate with differentiated proposals.

Valdis Dombrovskis noted that much has changed since the European Union first drew up its fiscal rules in the 1990s, pointing out that the Union’s public debt has skyrocketed. Last year, the EU’s debt-to-GDP ratio reached 84% – around 20% more than two decades ago. Today, some EU countries have public debt ratios that far exceed 100% of their GDP, such as Greece, Italy, France, Spain, Portugal, Cyprus and Belgium.

What was also highlighted is that the European Union faces huge reform and investment needs: for the green and digital transition, for strengthening our social and economic resilience and for securing long-term energy supply.

Reforms and investment are essential, said the Commissioner for the Economy, Paolo Gentiloni, noting that “the green and digital transition, the strengthening of economic and social resilience and the need to strengthen Europe’s security capacity will require large and sustainable public investments the next years. Reforms that enhance sustainable and inclusive growth remain an essential component of credible debt reduction plans. The positive interaction between reforms and investment is already showing its benefits under the NextGenerationEU Recovery and Resilience Facility”.