The article “Main elements of fiscal reforms agreed by EU governments”1 reports on the historic agreement reached by EU finance ministers to reform the bloc’s fiscal rules, known as the Stability and Growth Pact. The article outlines the main points of the new approach, which aims to offer countries tailor-made debt reduction paths and incentives to invest in green and digital technologies.
The article explains that the new rules will focus on net primary expenditure every year, which is the indicator under a government’s direct control, rather than several indicators that are not directly observable or often revised. The article also states that the European Commission and the country concerned will agree on a path for net primary expenditure for four years to cut its debt and deficit to below the EU’s limits of 3% and 60% of gross domestic product (GDP) respectively.
The article further details that the four-year period can be extended to seven years if a government makes certain types of investments and reforms, especially those approved by the EU to pay out in cash from its post-pandemic recovery fund. The article also mentions that the new rules will set a minimum average annual amount of debt reduction for countries with high debt, and a margin below the 3% deficit ceiling to create room for manoeuvre in case of unexpected events.
The article concludes by noting that the agreement is a compromise between countries that favour more fiscal discipline and those that advocate more flexibility and investment. The article also quotes some of the finance ministers who expressed their satisfaction with the deal and their hope for its implementation.