Stability and Growth Pact: New Rules for EU Debt

May 10, 2024 Benn-Ibler Rechtsanwälte

New rules for member states’ public debt and budget deficits: The EU Council of Ministers has finalised a reform of the Stability and Growth Pact (SGP). The following article briefly discusses what’s included in the reform and the new rules governing how the European Union intends to get rid of debt.

The SGP imposes debt ceilings on the Member States of the European Economic and Monetary Union and is thus intended to ensure sound public finances. These are seen as essential to help stabilise the Eurozone.

If a Member State’s budget deficit (the ratio of a country’s deficit to its gross domestic product) exceeds three percent, it is subject to sanctions under the so-called excessive deficit procedure. Counter-measures and budgetary corrections must then be taken by the Member State concerned. Most recently, the coronavirus crisis and the Russian war of aggression have led to the suspension of the excessive deficit procedure.

The previous rules were heavily criticised in the past. They have been the subject of intense criticism for being too complicated and too strict.

Clearly defining the minimum requirements for reducing average deficits and debt is now the main objective of the reform. The SGP is to become more pro-investment, more flexible, and better tailored to individual countries’ circumstances.

Countries with an excessive debt of more than 90 per cent of GDP will have to reduce their debt ratio by 1 per cent a year.

The self-responsibility of the Member States for the reduction of their debt is also to be strengthened. If Member States present credible investment and reform plans that improve growth potential, the Commission should also be able to extend the debt reduction period.

As a general rule, the level of debt of a Member State should not exceed 60 per cent of the output of its economy. In addition, the general government deficit is to be kept at less than 3 per cent of its gross domestic product.

For the regulations to enter into force, they must now be formally adopted by the Council and published in the EU’s Official Journal.

European Parliament press release (23 April 2024)