Council conclusions on EU Fiscal Rules: wellbeing of people and planet under threat?

Marking another step forward in the reform of the Economic Governance Framework, EU economic and financial affairs ministers recently adopted Council conclusions on the fiscal rules reform.  

The EU faces huge economic, social and climate challenges, including building a greener, more sustainable future. The reform of the EU fiscal rules is an opportunity to shift priorities away from focusing only on debt levels towards focusing on the wellbeing of people and planet.  

A lot is at stake: the rules will determine how quickly Member States will have to reduce their debt and deficit levels and whether they can do so without cuts to areas like social protection, education, care, and social services, which would be catastrophic for people’s wellbeing. It will also determine Member States’ capacity to make the massive investments needed for a just transition to climate neutrality while making sure no one is left behind.  

The Council conclusions come as a response to the reform orientations that the Commission published end of last year (read our blog about it here). 


Cause for concern in the conclusions 

Moving away from the ‘one-size-fits-all’ approach to debt reduction, as suggested by the Commission, is hugely important for protecting investments and prioritising wellbeing. However, negotiations are not over yet, and unfortunately some demands from Council could be a cause for concern. 

One demand, for example, involves setting a common numerical safeguard to ensure sufficient and steady debt reduction and to make sure that spending does not outpace growth. It also asked for a common quantitative benchmark, practically a spending cap. As part of ongoing discussions, Germany has added numbers to these proposals, suggesting that countries should cut their debt at different speeds (1 percentage point for countries with high debts and 0.5 percentage points for countries with medium debts). They also propose that the spending cap be calculated based on a 1% limit between the difference of a country’s potential GDP growth and its net primary expenditure. So, for example, if a country’s GDP growth is expected to be 1.5% in a year, it could only spend up to 0.5% of GDP. 

These proposals are worrying, as the above measures could force budget cuts in some Member States and impede their ability to fully invest in the just transition. We are also disappointed that the Council Conclusions want reforms and investments to focus on growth or resilience, which would allow Member States to prioritise GDP growth over wellbeing. In line with this, regretfully, Council also removed the important reference to supporting the implementation of the European Pillar of Social Rights.  

Even if the Commission sticks to their original country-specific approach to debt reduction, we do not see necessary paradigm shift that the economy serves people and planet rather than the other way around. Smaller changes to fiscal policy-making, such as those under discussion, will not be enough to tackle the big societal challenges we face. 


What else is in the conclusions? 

EU ministers largely agree on several elements of the orientations: maintaining deficit and debt limits of 3% and 60% of national GDP, the overall design of country-specific debt reduction paths based on an overall EU fiscal trajectory set by the Commission as well as national fiscal plans including reforms and investments. They also agree to align their national plans with national electoral cycles. Additionally, they support an extension of the adjustment period for debt and deficits in exchange for reforms and investments that support growth or resilience, strengthen public finances, and address EU priorities. They agree to keep the general escape clause as well as to add a new country-specific clause in case of exceptional circumstances outside the control of the government with a major impact on public finances. 

 Finally, the conclusions outline remaining clarifications needed, including on the definition of the methodology for setting debt reduction paths, the principles for an extension, the role of country-specific recommendations under the European Semester process, the enforcement of plans and incentives for reforms and investment.  


Next steps 

The Commission is expected to publish proposals in the coming weeks, possibly in the second half of April. It will be crucial to conclude the work before the European elections in May 2024, to avoid further delays and potential risks to achieved progress with newly composed EU-institutions. At the same time, enough time for a strong involvement of the European Parliament, including its employment and social affairs committee, organised civil society and social partners, is also key.  

 Social Platform continues engaging – together with members and partners – with the European Commission, selected Member States and the European Parliament for fiscal rules that centre the wellbeing of people and planet. Stay tuned for more updates to come!