New EU fiscal rules inadequate to tackle Europe’s challenges

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After several years of intense negotiations, the EU institutions have agreed on the reform of the EU fiscal rules. However, rather than using this opportunity to create fiscal rules that can respond to Europe’s current and future challenges, the final outcome has fallen far short. As part of the Fiscal Matters coalition and alongside other civil society, trade union and political actors, Social Platform has voiced concerns about the new rules risk hindering rather than promoting a just transition and a sustainable, fair Europe. 

Our final verdict 

Addressing Europe’s big challenges, like accelerating a socially just transition, reducing poverty and inequalities, and adapting to the future of work all require more, not less, public investment. Unfortunately, the bottom line is the new fiscal rules risk severely restricting Member States’ capacity to invest, as they force Member States to reach arbitrary debt (60% debt-to-GDP) and deficit (3% of deficit to-GDP) ratios. Especially problematic are added numerical safeguards – particularly a requirement for those countries above 3% or 60% to reduce their structural deficit to below 1.5% of GDP. Overall, the combination of different requirements leads to very heterogeneous and extremely demanding fiscal adjustment for Member States. 

Positively, some changes were made to create more – but insufficient – space for more reforms and investments in common EU priorities (the green and digital transitions, social and economic resilience – including the Social Pillar that we successfully advocated for – and defense). In addition, we managed to include a requirement for Member States to report on investment gaps towards these common EU priorities. We hope that this will enable evidence-based policy-making and better allocation of resources.  

To follow these rules, Member States may have to implement significant expenditure cuts. This is highly problematic: investment needs are increasing, and so now is the risk that the EU’s focus on “new” priorities such as competitiveness, enlargement and defense will continue shrinking political and fiscal space for urgently needed social and just transition investments.  

Want to know more? Find Fiscal Matters’ analysis of the outcome of trilogue negotiations here

What’s next on the fiscal rules?  

The next important date is 20 September 2024 when Member States will need to submit medium-term fiscal-structural plans. Generally, the rules oblige Member States to consult civil society, social partners, regional authorities and other relevant stakeholders before submitting their plan. In addition, to qualify for a three-year extension of the adjustment period for national debt-and deficit-to-GDP ratios, Member States need to commit to a set of reforms and investments in line with common EU priorities. However, due to the short timeline, for the first medium-term plan, stakeholder consultations are not compulsory. In addition, relevant reforms and investments included in national recovery & resilience plans (NRRPs) will be taken into account for an extension.   

Therefore, stakeholder consultations and the addition of new reform and investment priorities are less likely for this first plan. Nevertheless, Social Platform will prepare a toolkit for its members’ national members to help them engage with their government in the preparation of national plans. 

What’s needed for the next mandate? 

With the EU fiscal rules overly restricting fiscal space in many Member States, other solutions are urgently needed in the next mandate to plug investment gaps and ensure Europe can become a more social, inclusive and sustainable continent. As part of the Fiscal Matters coalition, Social Platform has called on Member States to:  

  • establish a long-term EU just transformation fund post-2026 to drive the socially just transformation of our economies and societies; 
  • adopt new progressive taxation to plug green and social investment gaps; 
  • ensure social and green conditions for targeted public subsidies to companies;  
  • adopt a progressive social agenda. 

Background 

Social Platform has been advocating for better fiscal rules at every step of the process. Do you want to know more about the path to this agreement and our recommendations along the way? You can find multiple blog articles here

The final texts are available via the following links: