After more than two years of negotiations and 16 hours of talks in Brussels, the European Union finally reached a preliminary agreement on revising the rules covering government spending from 2025.
The bloc’s Stability and Growth Pact (SGP) has been around for 25 years since the introduction of the euro currency, and lawmakers hope there is a better balance between rigour and flexibility.
However, the long-awaited and much-delayed overhaul of these fiscal rules is still likely to mean tighter spending by governments, and every state will be obliged to apply them to their 2025 budget.
The SGP caps annual budget deficits at 3% and overall debt at 60% of gross domestic product (GDP). These limits are enshrined in law, yet many have ignored the rules, running up debts of up to 100% of GDP.
The pact was suspended in March 2020 as countries took action to deal with COVID-19, which meant they needed to increase borrowing even as tax incomes fell.
The suspension was extended until the end of 2023 after Russia’s invasion of Ukraine caused an energy crisis and prompted extra defence spending.
Added flexibility
The updated deal was reached between representatives of the European Council and the European Parliament.
If voted through this spring (before the legislature’s recess leading up to European elections in June), it will take effect from 1 January.