"We need to go beyond the Stability and Growth Pact"

EESC info: What is the EESC's position on the Commission's new economic governance proposal?

Javier Doz: The Commission has drawn up this proposal in view of the expiry of the general escape clause under the Stability and Growth Pact (SGP) in January 2024, the high deficit and debt levels in many EU Member States in the aftermath of the pandemic and, perhaps, following a critical reflection on the negative consequences of rigidly applying the SGP provisions to the political management of the Great Recession.

Although the proposal maintains the deficit and debt limits (3% and 60% of GDP, respectively), the methods and deadlines for achieving these objectives are more flexible and are differentiated based on the circumstances of the Member States.

Moreover, the proposal simplifies the rules, with the growth rate of net primary expenditure becoming the key indicator, thus excluding interest on debt, unemployment benefits and expenditure financed by discretionary measures or EU funds. The main change is the fiscal-structural plans, covering a period of four to seven years, which each government will negotiate with the Commission. The plans will also include structural reforms.

On 26 April the Commission published two proposals for a regulation and one proposal for a directive, which amend the corresponding objectives under the SGP on coordination of economic policies and budgetary surveillance, the excessive deficit procedure and the requirements for budgetary frameworks. Following pressure from the German government, provisions that were stricter than those set out in the Communication published in November were included, in particular the obligation for countries with a deficit level exceeding 3% to reduce debt at an annual rate of 0.5% of GDP, and the automatic application of the excessive deficit procedure to countries that deviate from the medium-term plan.

Although the EESC supports the core aspects of the Commission's package, the differentiated national fiscal-structural plans and the flexibility that it introduces into the SGP, the EESC believes that the conditions set out in the initial proposal published in November should be maintained and calls for a discussion on the need to go beyond the 1997 framework.

The EESC also calls for other issues to be addressed, including the possibility of creating a "permanent fiscal capacity" in the EU to finance a growing range of "European common goods". It also believes that involving national parliaments, local and regional authorities, social partners and civil society organisations in drawing up the fiscal-structural plans would strengthen national ownership of the commitments set out in these plans.

The EESC believes there should be differentiated treatment for investment in the fiscal-structural plans (in particular with regard to the green transition and defence), stronger social and labour objectives in investments and reforms, and a careful review of the methodology for analysing debt sustainability and the involvement of governments and independent national fiscal agencies in determining the "technical trajectory" for debt reduction.