‘Urgent, fundamental’ to review EU state budget rules

Finance minister João Leão said Monday it was “urgent and fundamental” to review European Union (EU) budget rules, which provide ceilings for deficit and debt, arguing that this was “an opportune time” for European countries to discuss it.

“Portugal believes that it is urgent and fundamental to review the budgetary rules,” said the minister, speaking at the beginning of the meeting with his counterparts from the finance ministries of the eurozone and the EU, in Brussels.

João Leão defended “budgetary rules that are more growth-friendly and, in particular, […] rules that are better adapted to the starting situation of each of the countries, particularly in terms of public debt […] to ensure that countries have room to make the necessary investments”.

He said that the revision of the EU’s budgetary rules should allow “not only economic recovery, but also to [respond to] major challenges in terms of combating climate change, which will require major investment”.

“We must have rules that create, on the one hand, the sustainability of public finances, but that do not impose blind cuts that jeopardise economic growth,” he added.

The safeguard clause of the Stability and Growth Pact – which temporarily suspends discipline rules on matters such as deficit and public debt – was activated in March 2020 to allow member states to react quickly and adopt emergency measures to mitigate the unprecedented economic and social impact of the Covid-19 crisis.

At meetings in Brussels marked by the entry into office of eight new finance ministers in the EU and the start of the French presidency of the EU Council, he said that this is “the opportune time” to hold these discussions, “so that in 2023, when the rules come back into force, they will have been reviewed and more favourable to economic growth”.

With requirements such as a deficit below 3% of GDP (Gross Domestic Product) and public debt below 60% of GDP, these budget rules have been suspended since then and will remain so until the end of 2022, since the Commission considered that the European economy will continue to need support next year as well.

The clause is scheduled to be deactivated in 2023, when countries will already have to meet the budgetary requirements, even if the post-pandemic criteria are currently under discussion.

France, which takes over the rotating presidency of the EU Council in the first half of 2022, has already come out in favour of reforming the Maastricht criteria (since they came into force at the time of the treaty signed in this Dutch city), with Emmanuel Macron stressing that the question of for or against the 3% deficit is “outdated”.

In mid-October 2021, the European Commission relaunched the debate on revising the fiscal rules, awaiting views from stakeholders to decide on the future of economic governance in the EU.

Brussels’ aim is to reconcile the control of public debt and deficit levels triggered by the crisis with the need to invest more in the face of the climate problem.

The French EU presidency hopes this debate will involve governments as well as social partners and civil society.