1. Skip to content
  2. Skip to main menu
  3. Skip to more DW sites
PoliticsEurope

EU members strike deal on looser fiscal rules

December 20, 2023

The agreement among the 27 EU countries on looser fiscal rules was preceded by a Franco-German proposal agreed by German Finance Minister Christian Lindner and his French counterpart Bruno Le Maire.

https://p.dw.com/p/4aPth
French Minister of the Economy and Finance Bruno Le Maire (right) and German Finance Minister Christian Lindner
German Finance Minister Christian Lindner (left) and his French counterpart Bruno Le Maire have proposed a new set of looser fiscal rules for the EUImage: Michal Cizek/AFP

Finance ministers from EU member states have agreed on proposed changes to the bloc's rules to limit debts and deficits in member states' spending. 

"I am happy that after a long discussion and tough negotiations, we have now reached a good agreement on the EU's fiscal rules," Dutch finance minister Sigrid Kaag said after ministers held a two-hour video meeting.

The new rules set minimum amounts of average deficit and debt reduction a government must observe, to satisfy the frugal camp of EU countries that is led by Germany. But, in general, the new rules are more lenient than the previous framework, marking a win for the mostly southern countries led by France.

The plans still have to be adopted by the countries and negotiated with the European Parliament.

EU agrees sweeping immigration reforms

Germany praises new rules

The new fiscal rules are both more realistic and more effective, German Finance Minister Christian Linder wrote in a post on X, formerly Twitter.

"They combine clear figures for lower deficits and falling debt ratios with incentives for investment and structural reform," he said, adding that it would strengthen stability in the bloc.

The agreement among the 27 EU countries was preceded by a Franco-German proposal that Lindner and his French counterpart Bruno Le Maire agreed on Tuesday evening. The EU's two economic heavyweights had been at odds over the rules for some time. 

The agreement will have no impact on the EU members' fiscal policy in 2024 because national budgets for next year have already been decided on the basis of guidelines agreed earlier in 2023.

Why is the deal important?

The deal is the fourth reform of the EU's fiscal rules, known as the Stability and Growth Pact, which is designed to underpin the value of the EU's single currency, the euro, by limiting government borrowing.

This is with a view to prevent national debt difficulties, and resultant pressure on the euro currency, such as those experienced in the aftermath of the financial crisis in countries like Greece, Spain, Italy and Portugal.

The pact was designed to provide some shared standards on domestic fiscal policy in the EU, with this issue still more or less completely in the control of individual member states. It's also deemed necessary given that eurozone members share a currency and central bank so they do have unified monetary policy.

It sets nominal limits of 3% of GDP for annual government deficits and 60% of GDP for overall public debt.

That said, almost every EU member, Germany included, is currently well above the 60% public debt target in the aftermath of heavy spending during the COVID pandemic.

This pressure in recent years, exacerbated further by the Russian invasion of Ukraine, put almost every EU member in breach of its own targets and prompted calls for reforms that would set a more realistic path back towards the desired benchmarks.

dh/msh (AFP, dpa, Reuters)