EU finance ministers seal historic agreement on budget reforms
The European Union (EU) reached a consensus on Wednesday to implement significant reforms aimed at promoting investments while maintaining fiscal responsibility.
This breakthrough followed successful negotiations between France and Germany, who, after resolving their differences in Paris, paved the way for the comprehensive agreement during a video conference of finance ministers from all 27 member states.
France’s Finance Minister Bruno Le Maire celebrated the deal as a “historic accord” on social media, emphasizing the culmination of two years of intense negotiations resulting in new European budget rules.
Dutch Minister Sigrid Kaag echoed the sentiment, highlighting that the agreement encourages reforms, provides room for investments, and is tailored to the specific needs of each member state.
The fiscal constraints imposed on EU members during the COVID-19 pandemic, which temporarily allowed increased state spending, became the focal point of a two-year debate between countries advocating for a return to strict controls, led by Germany, and those, led by France, pushing for flexibility to address diverse challenges such as the transition to green energy or geopolitical initiatives.
The compromise deal retains the three percent deficit target but introduces more flexibility in how quickly and severely a country must cut spending to meet the parameters.
Spanish Finance Minister Nadia Calvino described the rules as more realistic, addressing the post-pandemic reality and incorporating lessons from the great financial crisis.
With time running out for a deal, the EU faced the prospect of the original stability pact returning to force on January 1, which could have damaged the EU’s credibility in financial markets.
The political agreement reached will now seek endorsement from the European Parliament to pass binding legislation before the upcoming elections in June.
The proposed rules adapt to the unique situations of member countries, allowing for a slower return to fiscal frugality for those with significant spending needs.
Member states are encouraged to present their own adjustment trajectory over a minimum of four years, with the possibility of extending it to seven years based on reform and investment efforts.
To address concerns from countries like Germany, the proposal suggests that those with excessive deficits make a minimum annual effort to reduce their deficit, while also allowing a pause in such efforts for certain countries from 2025 to 2027.
Germany’s insistence on a 1.5 percent of GDP public deficit target for highly indebted nations aims to maintain a safety margin relative to the three-percent ceiling.
The agreement, compared to previous rules, is viewed as less restrictive on deficit targets, offers a more progressive pace of reaching those targets, and provides incentives for investment, marking a significant departure from the previous fiscal framework.
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