Europe's fiscal rules review - what does it mean?

The European Commission recently unveiled a proposal for the reform of fiscal rules in the European Union, which had been suspended during the pandemic but are now set to be reactivated and updated. 

The public debt in the EU surged to 90% of GDP in 2020 due to the pandemic. Although it decreased to 84% in 2022, it still remains well above the limits set by the Commission.

Many countries have spent a lot of public money in recent years on measures to cushion the impact of the COVID-19 pandemic, Russia's war in Ukraine and the energy crisis.

The Commission's proposal aims to grant EU member states greater control over how they meet the fiscal goals outlined in the EU Treaties. These goals include reducing public deficits to below 3% of GDP and public debt to below 60% of GDP. However, countries will be required to adjust their budgets by a minimum of 0.5% of GDP annually until they reach the 3% deficit limit.

"The objective is therefore a gradual reduction of public debt over 4 or even 7 years for countries above the limits, with a country-specific approach," Paolo Gentiloni the European Commissioner for Economy told Euronews. "On the other hand, reduced fines would be effectively applied in case of non-compliance with the rules."

It is expected that 14 countries, including Italy, France, Romania, Spain, and Malta, will exceed the 3% deficit limit in 2023. 

Gentiloni explained that the Commission chose this approach because the previous fiscal rules were unrealistic and overly complex, which led to a lack of implementation. Having fiscal rules that exist only on paper is deemed unacceptable for the European Union.

"With a more gradual approach, I think we can achieve what unfortunately was impossible to achieve with the existing