What will change with the EU reform of the stability pact
All the details on the communication, presented yesterday by the EU Commission, which defines the guidelines for the reform of the Stability Pact.
Will Brussels really be less austere and rigid on public finances with the reform of the EU stability pact in the pipeline?
This is what insiders are asking after yesterday's communication from the European Commission.
The European executive yesterday presented its guidelines for the reform of the Stability and Growth Pact, with the aim of “strengthening the sustainability of public debts through a set of simpler, more transparent and effective rules.
With a statement, the EU executive explains that the proposal is based on a European risk supervision mechanism "transparent, which differentiates cases between countries taking into account the challenges on their respective public debts".
THE DRAFT OF THE NEW AGREEMENT AT A GLANCE
A "simpler, more transparent and effective Stability and Growth Pact, with greater national ownership and better implementation" that allows for "reforms and investments" and a "realistic, gradual and sustained" reduction in public debt.
These are the principles underlying the communication, presented yesterday by the EU Commission, which defines the guidelines for the reform of the Stability Pact. Suspended in 2023, barring a worsening of the economic scenario, it will return from 2024. This is not a legislative proposal, which is expected in the first quarter of next year and will follow the discussion between the EU countries, but a document that indicates the principles basis of the reform.
HOW THE NEW MECHANISM WILL WORK
The mechanism – which would come into force starting from the 2024 budgets – is based on a new "single operational indicator, on net primary expenditure, that is the expenditure that is under the direct control of the government, which will serve as a basis for establishing the path of adjustment of public accounts and – says Brussels – carrying out annual supervision, thus significantly simplifying the system ”.
Therefore, the interest expense will not be considered for the purposes of the agreement.
ADJUSTMENT OF ACCOUNTS EVERY FOUR YEARS
The proposed new procedure provides that a reference path for the adjustment of the accounts is presented by the European Commission over a period of 4 years for the individual countries, based on its sustainability analyzes, and no more than seven years-
It will aim to ensure that debt is put on a downward trajectory and that "deficits remain credibly below the 3% of GDP threshold set in the Maastricht Treaty". At that point, member countries will submit medium-term plans on public accounts to the EU executive in which they can also "propose a longer adjustment period, up to 3 years more, if the path is supported by a series of reforms and investments that support debt sustainability, and respond to common European objectives and priorities ".
The Commission, at that point, will evaluate the plans and provide a positive opinion if it finds that the debt is being directed on a downward trajectory "or if it remains at prudent levels" and if the budget deficit will remain "credibly below 3% of the GDP over the medium term ". Subsequently, the EU Council would ratify the plans.
CONSTANT MONITORING
Finally, the Commission "will continuously monitor the implementation of the plans" while member countries will be required to report the progress made each year on their implementation, to facilitate monitoring and transparency.
WHAT CHANGES ON THE OBLIGATION TO REDUCE DEBT
With respect to the problematic debt rule, the obligation to reduce the debt each year for one twentieth a year on the part exceeding 60% of GDP, considered impracticable, comes out.
However, the excessive deficit procedure remains, which will continue to be applied in the event of deficits above 3% and will be strengthened in the event of a deviation of the agreed path on debt reduction, for countries with levels above 60% of GDP.
LOWERING OF PENALTIES
Finally, the Commission proposes a general strengthening of the control and sanction mechanisms, first of all by lowering the amount of sanctions, which according to the Brussels proposals will make them "more effective".
There are also "stronger reputational sanctions". While the disbursement of structural funds and funds on recovery and resilience plans will be conditioned, and in the case suspended, if the member countries do not take the necessary initiatives to correct excessive deficits.
THE ANALYSIS OF THE SUN 24 HOURS
"The major difference with the past – underlined Il Sole 24 Ore – is that the reform proposes that the indebted Member States agree on a plan with the Commission, on the model of that for the NRP, with which they undertake to carry out in 4 years, up to 7 for those highly indebted, a path of fiscal adjustment and together reforms and investments to continue the green and digital transition. The indicator taken into consideration will be primary public expenditure (expenditure net of debt interest). The plan must be approved by the Board on the basis of the executive's judgment. The excessive deficit procedure would remain and the debt procedure strengthened and activated when a state with debt exceeding 60% of GDP deviates from the agreed spending path ".
WHAT GENTILONI SAID
“On public accounts, part of our rules have worked well, for example the 3% limit on the deficit-GDP rule which signals to governments that money is not free. Others have not been successful, perhaps because they have become unrealistic, for example on the reduction of the 20th of the debt in the part exceeding 605 of the GDP. And when you have an unrealistic path, in the end you don't have a path ”, said the European Commissioner for Economy, Paolo Gentiloni, in the press conference on the reform guidelines of the Stability and Growth Pact presented yesterday.
"This is why a new, more realistic mechanism on debt relief is being proposed," he added.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/patto-di-stabilita-piano-riforma/ on Thu, 10 Nov 2022 06:52:33 +0000.