The European Union (EU) has proposed a modernization and reform of the budgetary rules governing the Stability and Growth Pact, a set of rules that limits the debt capacity of EU countries. The European Commission has proposed maintaining the current 3% deficit and 60% debt targets but with individual debt reduction plans tailored to each country, which would allow greater flexibility in budgetary management. The proposal has provoked bitter divisions in the EU over how to boost investment and control public spending.
The Stability and Growth Pact was suspended in 2020 due to the coronavirus pandemic, but a group of countries is increasingly calling for a return to austerity, while others are calling for the suspension to be maintained. The European Commission’s proposal seeks to update the complex set of rules and open a months-long period of negotiations between the European Parliament and the bloc’s 27 member states.
However, countries have different views on the need for changes to EU budget rules. Germany, which advocates fiscal discipline, fears that the reform would loosen the EU’s budgetary straitjacket too much and undermine fairness within the bloc. On the other hand, Italy and other southern European countries argue that the strict rules restrict their ability to invest. The European Commission has proposed that countries come up with their own gradual adjustment path, through reforms and investments, to reduce their deficit over a period of at least four years and has proposed a general escape clause in the event of a severe economic crisis requiring extraordinary measures, generally prohibited by the set of rules.
Negotiations between the European Parliament and the bloc’s 27 member states are expected to continue for several months, as the reform of EU budget rules is a controversial issue that requires a compromise between countries with different interests.
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