EU Parliament Approves New Stability and Growth Pact
With the basic provisions remaining, there is now greater flexibility in terms of repayment plans and a greater focus on investments
The EU Parliament approved the new Stability and Growth Pact by a clear majority, with the attention of the main Italian parties evident. The text is the result of grueling negotiations between member states and changes the rules of economic governance. The fundamental point is to keep the parameters of Maastricht: public debt below 60% of GDP, deficit-to-GDP ratio no higher than 3%, but more gradual recovery plans are in place for those who will have to adapt.
The goal that Brussels is trying to pursue is to combine reform and investment with consolidation of public finances.
The Regulation concerning the Stability and Growth Pact (SGP) was approved by a vote of 367 in favor, 161 opposed, 69 abstentions; the Regulation that modifies the correctional division of the SGP: 368 votes in favor, 166 votes against, 64 abstentions; and the Directive amending the requirements for Member States’ budgetary frameworks got 359 votes in favor, 166 votes against, 61 abstentions.
Among the approved innovations, the Commission can subject a Member State to an excessive deficit procedure if it makes substantial investments: national co-financing costs for EU-paid programs will be excluded from the calculation of government expenditure, thus creating incentives for investment.
“Countries with excessive debt,” Brussels wrote in a statement, “will be required to reduce it by an average of 1% per year if their debt exceeds 90% of GDP, and by an average of 0.5% per year if it is between 60% and 90%. If a country’s deficit exceeds 3% of GDP, it should be reduced to 1.5% during periods of growth, and a spending buffer should be created for periods of difficult economic conditions.”
Thus, countries with the new SGP should have more room for maneuver: in addition to the standard four years, three additional years will be given to achieve the national plan’s goals. Over-indebted countries can then request a discussion with the Commission before making recommendations on the spending trajectory, as well as submit a revised plan if there are objective circumstances preventing its implementation, such as a change of government. In addition, there is a desire to pursue diversified approaches with regard to local specifics.
“These rules offer more investment opportunities, flexibility for member states, which can thus mitigate corrective measures and guarantee, for the first time, a ‘real’ social dimension,” commented co-rapporteur Margarida Marques (Socialist Party of Portugal). “Exempting co-financing from the spending rule will allow new and innovative policies to be developed in the EU. Now we need a permanent investment instrument at the European level to complement these rules.”