EU Unveils Fiscal Rule Reform Proposal... Eases Debt Reduction Burden

The European Union (EU) has initiated a reform of fiscal rules aimed at easing the debt reduction burden on chronically deficit-ridden countries. The main point is to reduce the burden by allowing each country to adjust the pace of debt reduction according to its economic and fiscal situation.

According to major foreign media on the 27th (local time), the EU Commission unveiled a reform plan for the fiscal rule known as the "Stability and Growth Pact (SGP)" the day before. The plan requires each country to submit a four-year fiscal adjustment plan, which must be evaluated by the Commission and approved by the EU Council.

The implementation period of the plan can exceptionally be extended up to seven years only in cases of special reasons such as increased spending due to new investments. During this period, no debt reduction requirements are imposed, and countries only need to maintain a downward trend in deficit and debt ratios compared to the initial levels. This expands discretion for countries to adjust the pace of debt reduction according to their economic and fiscal conditions for up to seven years, thereby easing the burden.

Previously, if the fiscal deficit and debt ratio exceeded the fiscal rule limits of 3% and 60% of Gross Domestic Product (GDP) respectively, countries had to reduce at least 1/20th of the excess amount.

The Commission plans to apply relatively strict uniform regulations after the implementation period ends. Member states that fail to reduce their fiscal deficit ratio below 3% of GDP after the implementation period must cut spending by 0.5% of GDP annually. Currently, the EU fiscal rules require member states to maintain fiscal deficits and national debt below 3% and 60% of GDP, respectively.

This reform plan comes ahead of the planned reactivation of the fiscal rules next year, which were temporarily suspended due to the need for increased fiscal spending during the COVID-19 pandemic. It reflects acceptance of criticism from some member states calling for the fiscal rules to be made more realistic.

However, disagreements are expected to cause difficulties in future negotiations, as Germany demands strict fiscal rules while Southern European countries suffering from chronic deficits advocate for flexible application. The Commission aims to complete consultations on the fiscal rule reform by the end of the year.

This content was produced with the assistance of AI translation services.