BRUSSELS ― EU finance ministers on Wednesday clinched a deal to overhaul the bloc’s spending rules and allow countries more time to rein in spending, according to five officials.
After weeks of fraught negotiations, governments finally agreed to the reformed framework that will set out a laxer pace of debt and deficit reduction than had previously been the case.
The decision was taken at a virtual meeting and followed a dinner between the French and German finance ministers in Paris on Tuesday night. The officials spoke on condition of anonymity because the discussions were confidential.
The so-called Stability and Growth Pact (SGP) was put on hold at the start of the COVID-19 pandemic to allow governments to increase spending in the wake of the worst recession since World War II. The European Commission proposed changing the old rules because of concerns that they were outdated, inflexible and barely enforceable.
The new format is designed to offer more gradual and tailored spending cuts for countries exceeding the EU’s threshold of 3 per cent deficit-to-GDP and 60 percent debt-to-GDP.
Deficits are above that limit in nine eurozone countries, including France and Italy. The Commission is expected to slap these countries with its sanctions mechanism ― known as the excessive deficit procedure (EDP) ― in spring 2024.
Weeks of shuttle diplomacy between the EU’s power trio ― Berlin, Paris and Rome ― delivered a breakthrough.
The agreed text proposes to extend the deadline for countries facing an EDP if the EU economy is in dire straits and foresees a three-year transition phase where a smaller fiscal adjustment is required from them.
Wednesday’s deal clears the way for the start of negotiations between member countries and the European Parliament in early 2024.