Stability and Growth Pact or also, in the official English version: Stability and Growth Pact (SGP).
The European Commission chaired by President Ursula Von der Leyen today presented the new fiscal rules that member countries will have to comply with to ensure the soundness of their public finances and the coordination of their fiscal policies.
Observe specials the thresholds of the debt-GDP and deficit-GDP ratios, but also the new times to hit the targets.
Reducing debt and deficit levels remains Brussels’ priority, alongside the growth of the economies of the 27 countries of the area.
However, the European Commission proposes less stringent deadlines than in the past.
Debt and deficit-GDP targets confirmed in the proposal
That is to say?
The diktat to the governments of the European Union is to bring down the levels of their public debt over a period of four years, and to ensure that the trajectory remains downwards for the following decade, without any additional measures being taken.
The Commission’s proposal does not set any numerical target for debt reduction, a factor that should disappoint Germany.
An article in Reuters recalls that the German proposal was to establish a minimum annual reduction of the debt equal to 1% of GDP for each country belonging to the EU bloc.
No targets to be achieved, however, on an annual basis.
Debt reduction will have to be the result of a four-year plan of reforms, investments and fiscal measures that will be agreed bilaterally between the European Commission and each government.
On an annual basis, it is rather the intention of the Commission to set a target on net expenditure.
The goal of total debt reduction over four years would thus replace the current rules, according to which governments are required to cut debt each year by 1/20 of the part exceeding the threshold of 60% of GDP. This maximum debt-to-GDP ratio threshold has been left unchanged, as has the 3% deficit-to-GDP ratio.
The above annual debt/GDP target, considered difficult to achieve especially for highly indebted EU countries, such as Italy, Greece and Portugal, will therefore be replaced – provided that the Commission’s proposal is approved – by a longer deadline .
With its proposal, the European Commission confirmed the current deficit-GDP threshold, equal to 3%. If the limit is exceeded, the request to EU countries is to cut the deficit by 0.5% of GDP each year, until the level returns below the percentage.
The reduction of the deficit, as well as that of the debt, must take place within a four-year time frame. Again, even in this case, the measures adopted to reach the threshold must ensure that the deficit remains below 3% for the following ten years.
The EU Commissioner for Economic and Monetary Affairs, Paolo Gentiloni, commented on the Commission’s proposal, which now ends up on the table of EU governments, to then be discussed by both the Council and the European Parliament, stating that the new fiscal rules represent “the beginning of a new chapter in the history” of the revision of the Stability and Growth Pact of the European Union.
“We look forward to engaging with the Member States and with the European Parliament to build consensus and bridge the gaps that still exist”, said Gentiloni, during the press conference that was called to present the reform proposal .
Paolo Gentiloni also referred to the specific case of Italy:
“Italy will have to reduce the level of its debt – said the EU Commissioner, adding that he believes that “there is no Italian who is not aware, not only in the government”, of the need to restore the country’s public finances.
And this new version of the Stability Pact will certainly help Italy.
“When this reform is approved, Italy will be able to do it more gradually and it will also be able to do it in the way that Italy has decided”, Gentiloni pointed out, pointing out that the new rules will allow the country to cut the debt at a rate that “it will be much more gradual and reasonable compared to the rule of the twentieth, which has actually made the implementation of debt reduction mechanisms very difficult over the last 10-15 years”.
The system envisages that individual governments therefore present medium-term four-year plans, in which they disclose the tools they intend to adopt to deal with macroeconomic imbalances and to launch new reforms. Plans, which are expected to be extended by three years, which must be evaluated by the Commission and receive the OK from the European Council.
Higher debts and deficits, more time for governments?
But governments that, like Italy, are grappling with high levels of debt will benefit from one deadline extension?
The answer is yes:
specifically, the European Union – according to the terms of the Commission’s proposal – could give governments more time in the process of cutting both debt and deficit levels, provided that they implement reforms aimed at improving fiscal sustainabilityto support growth or to invest in sectors that are considered priorities by the EU, such as those focusing on the energy transition or on the transition to the digital economy.
More time granted even in the face of reforms aimed at protection of civil rights o al strengthening security and defence.
If approved, the Commission’s proposal will give life to the fourth revision of the tax rules of the European Union of the Stability and Growth Pact.
The current Stability Pact of the European Union was suspended in 2020, due to the Covid-19 pandemic that exploded in the world that year.
The suspension is still active, and was motivated by the new challenges represented by the fight against climate change and by war in Ukraine.
That said, an alert addressed to the most indebted countries, including Italy, had arrived in 2022 by the Vice President of the Commission, Valdis Dombrovskis.
Once approved, the new Stability and Growth Pact expected to enter into force from 2024.