Member States and European Parliament agree on new rules for economic governance framework aka Stability and Growth Pact

After the agreement reached in a special Economic and Financial Affairs Council meeting a few days before Christmas, it took a 16-hour long last trilogue for Member States and the European Parliament to agree on a set of provisions reforming the so-called Stability and Growth Pact.

The new rules will allow Member States to pursue a sustainable and inclusive growth through reform and investments, while at the same time safeguarding debt sustainability and deficit resilience.

The key aspect of the new framework is the introduction of medium-term fiscal structural plans, where Member States will outline fiscal targets, expenditure and reforms deliverables, as well as provisions for addressing macroeconomic imbalances to bring debt level on a sustainable downward path in a 4-year fiscal adjustment period. Member States may be granted a 3-year extension, should they carry out specific reforms and investments aiming at improve resilience and growth potential, support fiscal sustainability, and address common priorities of the EU (fair, green and digital transition, energy security, social and economic resilience and defence capabilities).

Where Member States debt exceeds the 60% of gross domestic product (GDP) or deficit exceeds the 3% of GDP, the Commission will put forward its indications through a reference trajectory to ensure that Member States are able to reach the objectives within the fiscal adjustment period.

Medium-term plans will always be assessed by the Commission and endorsed by the Council.

The new rules grant Member States more freedom to manage their policies for sustainable growth, and provide for more dialogue with the European Commission. For instance, the Capitals may request the submission of a revised national plan if there are objective circumstances preventing its implementation, including a change in government.

However, new provisions enhance the enforcement mechanism, with the introduction of an annual progress report to be presented by Member States and assessed by the Commission. The rules on opening a deficit-based Excessive Deficit Procedure remain unchanged, while fiscal adjustment periods can be shortened should the Commission assess a failure of Member States’ deliverables.

The European Parliament and Council of the European Union will have to formally approve the text for the rules to become applicable as of next year.