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EU agrees on revised fiscal rules to spur investments and debt reduction

EU member states and Members of the European Parliament (MEPs) reached a preliminary agreement on Saturday to relax the bloc’s stringent fiscal regulations, providing governments with extended timelines to reduce debt while incentivising investments in critical areas such as climate, industry, and security.

This is based on a Reuters report.

This significant overhaul of the Stability and Growth Pact, established two decades ago, responds to soaring debt levels in several EU countries amid pandemic-induced spending and aims to align fiscal policies with ambitious green and industrial targets.

European Commission Vice-President Valdis Dombrovskis hailed the revised fiscal rules as a response to evolving economic and geopolitical challenges, emphasising their role in providing clarity and predictability for member states’ fiscal strategies.

Dombrovskis underscored the importance of these rules in enhancing the sustainability of public finances and fostering sustainable growth through investment incentives.

MEP Margarida Marques emphasised the nuanced approach embedded in the revised rules, highlighting the shift towards case-by-case assessments and medium-term strategies to prevent austerity measures.

Marques stressed that increased member state ownership will equip nations with better tools to navigate fiscal challenges while promoting economic stability and growth.

Under the revamped regulations, countries with excessive debt will have more flexibility in reducing their debt burden, with targets set at a more achievable level than before.

The rules mandate gradual debt reduction over seven years, providing a longer timeframe for fiscal adjustments.

Additionally, countries facing deficits above 3 per cent of GDP are required to halve them during periods of economic expansion, ensuring the creation of fiscal buffers for future economic downturns.

The inclusion of defence spending in the assessment of high deficits underscores the geopolitical dimension of the revised fiscal rules, reflecting concerns raised by Russia’s actions in Ukraine.

This consideration reflects the EU’s commitment to enhancing security measures while maintaining fiscal discipline.

The extended timeline for debt reduction, coupled with a pragmatic approach to fiscal targets, aims to balance economic recovery with long-term sustainability.

Negotiators from the EU Council of Ministers and the European Parliament brokered the preliminary agreement, which now awaits formal endorsement by EU member states and the Parliament before it can be implemented next year.

(With inputs from Reuters)

Source: Thanks