The European Union is revising its financial rules to help countries manage their debt more effectively and to encourage investment. EU member states and European Parliament members have agreed to adjust the Stability and Growth Pact rules because some countries have record-high debt levels. Accumulated by countries spending vast amounts of money to counter the pandemic’s damaging effects and lockdowns, the debt is now ‘out of control.’
European Union revises its fiscal rules to address debt and boost investment
The revised pact allows for a looser grip on economies by the EU regarding minimum requirements for reducing deficits and debt. This change will give European countries more time and incentives for public investments. The move is a significant reshaping of guidelines which haven’t been altered in two decades. It provides EU member states struggling with increasing debt levels with some light at the end of the tunnel.
We have now reached a good agreement on the EU’s fiscal rules,” said Dutch Finance Minister Sigrid Kaag. “This agreement provides for fiscal rules that encourage reforms, with room for investments and tailored to the specific situation of the member state in question.
Under the new rules, countries with over 90% debt-to-GDP ratios must reduce debt by 1% yearly. Nations with 60-90% debt-to-GDP must cut 0.5% annually. Countries running deficits over 3% of GDP during economic growth must lower them to 1.5%.
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Formal approval is still required from EU countries and the European Parliament before the changes become permanent in 2025.
