Strengthening the EMU: way forward for the next 5 years (SPG reform, macroeconomic imbalance procedure)

Objectives

On 26 April 2023, the Commission presented a package of three legislative proposals: two regulations aiming to replace (preventive arm) or amend (corrective arm) the two pillars of the stability and growth pact first adopted in 1997, and an amended directive on requirements for budgetary frameworks of member states. On 21 December 2023 the Ecofin Council achieved an agreement on the reform of fiscal rules which paved the way for negotiations with the Parliament on the preventive arm regulation.
The objective of this exchange of views is to assess whether the new rules of the Stability and Growth Pact will be ambitious enough to address the fiscal vulnerabilities of over-indebted EU countries.

Points of discussion

1. Is the new fiscal framework proposed by the EU ambitious and effective enough to address the budgetary vulnerabilities of over-indebted EU countries and avoid a looming euro crisis? What will make these new rules more likely to be implemented than the previous ones?
2. What can explain that the most heavily indebted States, which will be subject to an excessive deficit procedure, will not be subject to the rule of an average annual reduction of 1% of their public debt in relation to GDP? To what extent can the revision of the SGP contribute to rationalizing expenditures, improving the quality of spending and creating space for supply side reforms?Given the level of the public debt of certain States, the process of reducing the public deficit below 3% and normalizing public debt could only take place over extremely long periods (4-7 years). According to the European agreement on the SGP reached at the Ecofin Council in December, the 60% norm would be reached in 50 years in France and 80 years in Italy. Is such an adjustment horizon credible?