by Jan Strupczewski

BRUSSELS (Reuters) – European Union finance ministers reached agreement on Wednesday on a new stability and growth pact that will allow member states to extend the duration of reducing their public deficits and debts and continue to invest even during periods of budgetary consolidation.

This reform comes the day after the announcement by the French Minister of Economy and Finance, Bruno Le Maire, of a “100% agreement” on this issue between France and Germany, whose differences had hampered since months of searching for a compromise.

“Historic agreement! After two years of intense negotiation, we have new European budgetary rules!” Bruno Le Maire welcomed Wednesday on the social network

“For the first time in 30 years, this stability pact recognizes the importance of investments and structural reforms,” he explained. “Europe will be able to look forward more confidently to the coming decades and assert its place on the international scene.”

Member States’ support measures in the face of the Covid-19 pandemic and its devastating consequences on economic activity have raised European public debts to record levels and prompted the EU to suspend the Stability and Growth Pact in 2020. limiting budget deficits to 3% of gross domestic product and public debt to 60% of GDP, then deciding to review the terms.

In addition, member countries need to make heavy investments for the decarbonization of their economies or defense policy.

Under the new rules, each government will continue to be required to respect a timetable for reducing its deficit and debt, enough to satisfy the so-called “frugal” countries, with Germany in the lead. But the new budgetary framework is more flexible than the previous one, a victory for France and the southern EU countries.

While the previous version of the pact required highly indebted countries like Italy to reduce their debt each year by one-twentieth of the excess debt beyond 60% of GDP – 4% of gross domestic product in the case of Rome – the new rules only require a debt reduction of at least 1% of GDP on average per year.

From 2025, member states will have four to seven years to reduce their deficits and debt. The longest period will be granted to countries investing or reforming in areas deemed priority by the EU, such as the energy transition and defense.

The agreement announced on Wednesday must still be the subject of negotiations in the European Parliament before entering into force but the heart of the text should not fundamentally change. It will not apply in 2024 because the national budgets for next year have already been approved based on the rules set in 2023.

(Reporting Jan Strupczewski, Jean-Stéphane Brosse for the )

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