EU fiscal rules reform – So close to the end yet so far from protecting people and planet
As policymakers enter the next phase in reforming the EU fiscal rules, Social Platform has deep reservations around their potential impact which will likely inhibit much needed social and green investments. Unless significant improvements are made to the latest revision of the rules, we could be facing strict limits on public spending and a return to austerity policies for many member states.
After a proposal by the European Commission in Spring 2023 and months of negotiations in the Council of the EU and the European Parliament, both institutions reached their negotiating positions for trilogues in December and January respectively (Council general approach; Parliament report)
Our views in a nutshell
Unfortunately, the ambition of both the Council and the European Parliament is insufficient to guarantee that the reformed rules make social, environmental, and climate concerns a clear priority. Instead, the obligation to achieve outdated debt and deficit-to-GDP ratios remains front and centre while reforms & investments remain an afterthought.
The European Commission aimed for a country-specific approach to fiscal adjustment based on a debt sustainability analysis (DSA). It’s unclear what this methodology means concretely for the adjustment effort required from individual Member States.
The Council added numerical safeguards to this methodology which means uniform debt and deficit reduction obligations. This one size fits none approach will force Member States to cut their spending based on their debt and deficit levels, which will likely result in cuts to social spending.
If adopted, depending on the country, the DSA or the safeguards risk making it very difficult to avoid significant budget cuts – and even austerity – that could be very harmful to people’s wellbeing and tackling Europe’s major challenges. This will be especially the case once the Recovery & Resilience Facility (RRF) funds will have run their course in 2026. The think tank Bruegel developed an analysis of what the DSA (in its current version, based on the 2022 debt sustainability monitor) and different safeguards included in the Council proposal would mean for the fiscal adjustment efforts required by all Member States. However, both Council and Parliament texts foresee a revision of the DSA methodology that is to be undertaken soon, which must be used to reduce adjustment requirements. However, any included safeguards could not be changed so easily.
Overall, significant changes will be needed in trilogues to make sure these rules are realistic, future-proof and serve people & planet. Social Platform would like to see:
- The “safeguards” which impose automatic cuts to spending, removed.
- A revision of the DSA to ensure realistic adjustment paths that avoid a return to austerity and enable the necessary fiscal space for investments in common EU priorities.
- Further measures to protect investments for common EU priorities.
- Positive elements in the Parliament’s position need to be preserved. This includes the obligation to report on investment gaps, the inclusion of the social convergence framework and requirements for regular and meaningful stakeholder involvement in the development, implementation, and evaluation of Member State’s national fiscal structural plans.
Need a reminder of everything that’s happened so far? Catch up on our views of the Commission proposal (blog), Council conclusions (blog), initial Commission orientations for the reform (blog) and our contribution to the public consultation (blog).
Want to know more about what’s in Council’s and Parliament’s positions and how we think they need to change during trilogues? Check out our analysis of both positions.
Trilogues have started and the time frame to finish negotiations is extremely tight in order to finish the reform in this legislature. They will need to be finalised by mid-February at the latest to have the text checked internally by the institutions’ legal services in time for a Parliament adoption at the last plenary session end of April.
Social Platform will continue working together with its partners within the Fiscal Matters coalition to push for the necessary changes to be included during trilogues to try and ensure the best outcome for people & planet.