EU Commission suspends debt pact for another year

EU flags in Brussels

The Commission therefore wants to link the postponement of the re-application of the Stability Pact to a debate about reforming the regulatory framework.

(Photo: dpa)

Brussels The EU Commission wants to suspend the debt rules for the euro zone for another year. The Brussels authorities want to announce this decision on Monday, as the Handelsblatt learned from EU circles. The so-called Maastricht criteria, which limit the permissible national debt to 60 percent and the budget deficit to three percent of the national economy, have not been applied since 2020. The reason for this was the corona pandemic.

The deficit rules were originally supposed to apply again next year. However, the war in Ukraine and the economic slowdown in Europe now make it necessary, according to the Commission, to postpone the re-application of the Stability and Growth Pact to 2024.

The measure had been announced in the past few weeks. This does not come as a surprise to the financial markets. The Commission recently questioned the member states and found broad support for their proposal, according to Brussels.

Still, the extended suspension is likely to spark controversy. In Germany and other countries with solid public finances, there is a fear that some southern euro countries could set themselves up in a permanent state of emergency – and the debt rules would lose all meaning.

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The Commission therefore wants to link the postponement of the re-application of the Stability Pact to a debate about reforming the regulatory framework. However, the idea of ​​what such a reform should look like differs widely in the euro zone. Southern European countries like Italy are pushing for more flexible debt targets. In Greece and Italy, the debt ratio is almost 200 and 150 percent respectively – the actual upper limit of 60 percent can hardly be reached in the medium term.

In an interview with the Handelsblatt on Monday, Federal Finance Minister Christian Lindner rejected a relaxation of the Maastricht criteria, but at the same time emphasized his willingness to compromise. “But the fiscal rules should be more realistic and effective,” he said.

Lindner argued that it was not in Germany’s interest to see other EU countries in a difficult situation. “The goal is for all economies to grow and have sustainable public finances. I propose combining a more credible long-term deleveraging path with flexible medium-term targets.”

The EU Commission has corrected its growth forecast downwards

The economic situation in Europe continues to deteriorate. At the beginning of the week, EU Monetary Affairs Commissioner Paolo Gentiloni revised the growth forecast for Europe significantly downwards. According to the Commission’s spring report, the economy of the euro countries will only grow by 2.7 percent this year. In February, the authority had expected four percent.

Gentiloni cited the increased prices for energy and other raw materials as a result of the war in Ukraine. There were also war-related disruptions in the supply chains. For Germany, the Commission lowered the growth expectations from 3.6 to 1.6 percent, as the country as an export nation is particularly affected by the slump in global trade.

At the same time, the Commission warned that the spring forecast was fraught with “extreme uncertainty” and “high downside risks”: “An escalation of the war, a sudden halt in energy supplies or a further slowdown in economic activity in the US and China could lead to a much bleaker outlook.”

More: EU Commission drastically corrects forecast for economic growth downwards

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