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EU Parliament votes for new debt rules

The majority of the European Parliament voted in favor of a new regulation of budget deficits and national debt. The vote was preceded by months of discussions. Even now, not everyone is happy.

The Parliament of the European Union (EU) approved the reform of the so-called Stability and Growth Pact in a vote, which changes the rules for budget deficits and national debts of the member states.

The law, which has been controversial for months, stipulates, among other things, that clear minimum requirements should apply for reducing debt ratios – but the individual situation of countries should also be given greater consideration when agreeing on EU targets. Furthermore, the debt level of an EU state must not exceed 60 percent of its economic output, and the national financing deficit should remain below three percent of gross domestic product.

Highly indebted countries with an over-indebtedness ratio of more than 90 percent should have to reduce this by one percentage point annually; for a debt ratio between 60 and 90 percent it is 0.5 percentage points.

The EU Commission should be able to take the increase in interest payments into account during a transitional period. If a state presents credible reform and investment plans that improve its economic resilience, the period for debt reduction should also be extended.

EUDeficit procedure exposed for a long time

Markus Ferber, the economic policy spokesman for the EPP group, welcomed the adoption of the law as a return “to a responsible EU budget policy.” Critics such as MP Henrike Hahn from the Greens/EFA group said the new regulations “do not meet the needs of this time”.

According to the European Trade Union Confederation and the New Economics Foundation think tank, if the new law is complied with from 2027 only Denmark, Sweden and Ireland would be able to meet the necessary expenses.

The reform of the rules that have been in force since the 1990s, which critics viewed as too complicated and too strict, was based on suggestions from the EU Commission. In recent years, the EU deficit procedures, with which EU members are punished for excessive debt, were suspended – especially against the background of special expenses due to the Corona crisis and the war in Ukraine. Deficit procedures should be initiated again from this spring.

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