EU reaches agreement on budget rules

The European Parliament and member states reached an agreement early Saturday on reforms to EU budget rules aimed at boosting investment while keeping spending under control.

The text updates the current rules, known as the Stability and Growth Pact, created in the late 1990s, which limit countries' debt to 60 percent of gross domestic product and public deficits to three percent.

"We have an agreement!" exclaimed the Belgian Presidency of the Council of the EU media platform after 16 hours of talks. "I welcome the political agreement on our ambitious reform of the EU's economic governance," said European Commission President Ursula von der Leyen. "The new rules will allow EU countries to invest in their strengths while consolidating their public finances. This is our common growth path," she added. The European Union has spent two years in an intensive effort to develop reforms, supported by more frugal member states such as Germany and other countries such as France and Italy, which are seeking more flexibility. After much wrangling between Berlin and Paris, the 27-nation bloc reached a deal in December, after which talks began with negotiators from the European Parliament. The text was criticized for its great complexity and derided by left-wing officials as a tool to impose austerity in Europe. Negotiators finally reached an agreement early Saturday, in time for a vote on the text in Strasbourg this spring before the parliamentary recess before European elections. The reforms will be formally adopted after an agreement between legislators and states. The deal will allow member states to apply the new rules to their budgets for 2025. "The new rules will help achieve balanced and sustainable public finances, structural reforms, promote investment, growth and job creation in the EU," the Belgian said presidency.

Maneuver field

The previous budget framework was perceived as too drastic and was never really adhered to. However, the rules were suspended after the coronavirus pandemic to allow member states to spend more at a time of major economic upheaval.

In the initial debates between the parties, the battle was fierce over how much the old restrictions should be relaxed to give more room for investment. As war rages in Europe and the EU pushes for a green transition, countries led by France have argued for more space to fund these key areas, including, for example, supplying arms to Ukraine.

Reaffirming previous debt and budget deficit limits, the new agreement allows more flexibility in the event of an excessive deficit. The text envisages looser fiscal rules, more adapted to the specific situation in each member state, allowing big spenders to return to austerity more slowly. The tailored approach means each country presents its own adjustment trajectory to ensure its debt sustainability, giving them more time if they undertake reforms and investment, and allowing for a less painful return to fiscal health. Monitoring will focus on spending trends, an economic indicator that is considered more relevant than deficits and can vary depending on the level of growth.

But Germany and its "austerity" allies managed to tighten that fiscal framework by imposing quantifiable minimum efforts to reduce debt and deficits for all EU countries, despite the reluctance of France and Italy. These changes greatly complicated the text.

The reforms are supported by the center-right group of the European People's Party, the liberals of Renew Europe and the large majority of the Socialist and Democrat groups. But the Greens and some elected representatives of the Socialists and Democrats reject it, as does the radical left. Those elected officials decried the return to austerity after three years of suspended budget rules due to the pandemic and the war in Ukraine. "We need investment in industry, defense, the ecological transition, that's what's urgent today, not to update economically absurd rules," French economist and S&D MEP Aurore Lalique told AFP. /BGNES, AFP