EU reviews changes in debt reduction rules

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Update on EU budget rules

A senior decision-maker in Brussels said that in view of the sharp increase in public debt during the new crown virus crisis, the EU will review whether its debt reduction rules need to be completely reformed, as the debate on the reform of the EU’s controversial Stability and Growth Pact has begun to intensify.

Valdis Dombrovskis, Executive Vice President of the European Commission, stated that in view of the significant increase in debt-to-GDP ratios of many member states during Covid-19, the European Union will consider the unrealistic nature of the Commission’s current system. Worry. Induced plunge.

The upcoming committee consultation will also study telephone He said on Saturday that certain public investments will receive more favorable treatment under the debt and deficit rules.

Eastbrowskis’ remarks come as EU finance ministers are preparing for a political debate on whether and how to reform the EU’s budget framework after the surge in borrowing by member states during the pandemic.

The EU suspended its usual spending rules in response to the crisis last year, giving member states more room to support their economies, but these rules will be re-implemented in 2023.

At the meeting of EU finance ministers and policymakers in Slovenia on Saturday, preliminary discussions were held on how to deal with this complicated and unpopular agreement.

Given the profound and long-term Department Between the fiscally conservative states in the North and the capitals of the South that want to see them completely reformed.

The topic under discussion in Slovenia includes an EU rule that requires member states whose debt exceeds 60% of the EU’s GDP ceiling to reduce their debt ratio by 1/20 every year.

Many countries admit that given that the EU’s overall public debt burden will reach 94% this year, and Italy’s debt ratio is expected to reach around 160%, the rules will impose excessively cruel fiscal austerity on some member states.

Donbrowskis, who is regarded as conservative on fiscal issues, said that the debt rule was proposed during the discussion because of concerns that “this may be unrealistic for high-indebted countries, especially after the crisis.”

He added: “Therefore, we need to formulate a debt rule that on the one hand ensures the reduction of public debt, on the other hand it is realistic for all member states.”

Another reform discussed on Saturday was the idea of ​​stripping green investment from deficit rules in order to ease the barriers to large-scale public spending plans involving climate transition.

The EU Economic Commissioner Paolo Gentiloni has repeatedly warned that given the need to increase spending on climate transformation over the next decade, the EU cannot afford to repeat the consequences of the last crisis, when public investment declined.

A paper submitted by the Bruegel think tank stated that in order to achieve the EU’s climate goals, the total amount of green investment needs to be increased by about 2 percentage points of GDP each year, of which public investment must account for 0.5% to 1% of GDP. GDP.

French Finance Minister Bruno Le Maire said on Friday that given the “enormous climate challenge” facing the EU, it is worth considering excluding green investment from the deficit calculations in EU fiscal rules.

Dombrovskis confirmed that the idea of ​​investing in the “golden rule” will also be part of the committee’s consultations.

However, thrifty ministers were deeply skeptical of this idea. They began to organize their arguments and opposed the far-reaching reform of the Stability and Growth Pact.

In a document distributed before the meeting outside of Ljubljana, the eight ministers expressed their willingness to discuss “improvements” to the rules, but they made it clear that their focus was on simplifying the rules and making them more transparent.

The organizer of the joint document, Austrian Finance Minister Gernot Blümel, told the Financial Times that he was open to discussions on reforms, but he questioned the motives of countries advocating green spending exemptions, saying he was worried that they would use the proposal as a “An excuse for not following necessary and reasonable rules.”

Eastbrovskys emphasized on Saturday that discussions on possible changes at this stage are still conceptual and it is too early to say whether any legislative changes are needed. He added that reaching a political consensus around any possible reforms is crucial.

Earlier in the crisis, some policymakers believed that the Stability and Growth Pact should be rewritten before the EU re-implemented the rules, but officials who met on Saturday said that given the complexity of the looming debate, new legislation is expected to be in place soon Is unrealistic. .

Therefore, the committee may need to provide new guidance next year on how it hopes to implement unchanging rules in a way that will gradually reduce budget support rather than pave the way for sudden suppression.

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