Commission wants to make debt reduction more flexible

The EU Commission wants to make debt reduction more flexible and more responsive to the individual circumstances of EU countries. At the same time, the EU authority is proposing better enforcement of financial rules and additional sanctions in its letter published today. Maastricht’s upper limits for the deficit of a maximum of 3 percent and 60 percent of total debt should remain unchanged.

The European Union Commission intends to submit concrete legislative proposals at the beginning of next year. According to the Brussels authorities, the countries of the European Union must agree on the main features of the reform by spring. The EU Commission does not want to change the EU Treaty and its well-established Stability and Growth Pact.

‘Net Expenditure Paths’ will come

The cornerstone of the reform should be the “net spending paths” that euro countries will have to follow in the future to reduce debt. Countries facing a “significant public debt challenge” must ensure, via a four-year plan, that debt is reduced and the 3 percent deficit limit is respected. Countries facing a “moderate public debt challenge” must comply with a corresponding three-year plan.

Any deviation should in principle lead to the opening of an incapacity procedure. However, the EU Commission provides for individual extensions of deadlines of up to three years and specific exemption clauses for member states in order not to stifle necessary investments through austerity. The general exception clause that was triggered at the start of the coronavirus pandemic should be maintained as an option to counteract a severe economic downturn.