EU states, lawmakers start talks to seal budget reforms

FE Team | Published: January 17, 2024 22:21:04

STRASBOURG (France), Jan 17 (AFP): EU member states and lawmakers on Wednesday kicked off negotiations on long-awaited budget reforms aimed at loosening rules to encourage investment while keeping debt and spending under control.
Finance ministers from the EU's 27 countries hammered out their own common position on the reforms last month after France and Germany bridged their differences.
Now the European Council, representing EU states, and legislators in the European Parliament will try to thrash out a binding law before elections across the bloc in June.
"It is both important and urgent that we finalise this dossier and provide clarity and predictability for fiscal policy," EU economy commissioner Paolo Gentiloni told lawmakers.
"Let us not lose sight of the ultimate goal: a reformed framework, that allows for gradual debt reduction while making space for the massive public investments that Europe needs."
The fiscal straitjacket imposed on EU members-limiting countries' debt to 60 per cent of GDP and public deficits to 3.0 per cent-was suspended during the Covid pandemic to allow greater state spending. It was extended due to the war in Ukraine, but stopped at the end of last year.
Finding new rules took a two-year debate: countries led by Germany wanted a return to rigorous controls, while others led by France wanted more flexibility.
The latter wanted to allow spending to finance, for example, the transition to green energy or arms deliveries to Ukraine.
While the compromise deal between the member states reconfirms the three-per cent deficit target, it softens the rules for how quickly and severely a country has to cut spending to get back within the parameters.
The draft text provides for rules more adapted to the particular situation of each country, allowing big spenders a slower route back to frugality.
Brussels is proposing member states present their own adjustment trajectory over a period of at least four years to ensure the sustainability of their debt.
Reform and investment efforts would be rewarded by the possibility of extending this budgetary adjustment period to seven years to make it less brutal.
The targets would be linked to evolution of expenditure, which some consider a more relevant indicator than deficits, which can fluctuate according to the level of growth.