The European Commission wants member states to have a tailor-made plan to reduce their debt, subject to reforms and investment
The pandemic crisis and the war in Ukraine have prompted Brussels to reconsider European Union (EU) tax rules. The community administration proposes to relax the tax rules so that the adjustments to reduce the debt are adapted to the situation of each country. In return, it will tighten sanctions for those member states that stray from the debt reduction path and have reputational damage to their economies.
Brussels’ plan is for each country to have a tailor-made four-year plan to reduce its national debt. Those who fail to meet the set targets and who maintain “substantially high” debt levels can request a three-year extension, provided they implement reforms and investment to reduce the deficit. Economies with “moderate” debt will be able to request a three-year extension.
“In short, it is about countries that are taking the path of debt reduction, without setting unattainable goals,” official European sources announced on Wednesday. Until now, fiscal rules have required Member States to keep their government deficits below 3% and reduce their debt to 60%. The new proposal does not set specific goals, but rather asks countries to stay on “a path of debt reduction”.
The European Commission is similarly proposing to increase sanctions for those countries that “deviate” from debt reduction. These are lighter measures than a possible freeze on European funds, but they would damage “the reputation” of these Member States. However, the document contains a general escape clause for exceptional situations –wars, pandemics…– and contains specific clauses for Member States in case a crisis affects only a number of countries.
The proposal now has to get the approval of the Member States and the debate promises to be long. The frugal countries – Germany, Austria… – are expected to demand tightening of fiscal rules, while countries like Greece, Italy and Portugal will see this measure as a lifeline for their economies. Spain belongs to this second group, with debt amounting to 116.1% of GDP in the second quarter of the year, according to Brussels calculations.
This reform aims to combat the debt burden in the EU, which has recently become a systemic problem. According to the latest data, debt stood at 94.2% in the eurozone in the second quarter of the year. In addition, the European Commission calculates that 17 Member States will exceed the 3% threshold of the government deficit this year.
Source: La Verdad
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