Ihe European Union (EU) has proven on many occasions that it is capable of reacting to crises. The most significant progress in European integration has been made during the most difficult times. This is particularly true with regard to our economic and monetary union.
In November 2022, the European Commission presented the most ambitious reform of EU fiscal rules ever proposed since the economic and financial crisis of 2008. These recommendations follow a series of economic shocks that required rapid, vigorous responses and often unprecedented.
In order to give governments the necessary leeway to respond to the economic and social challenges posed by the Covid-19 epidemic and Russia’s war of aggression against Ukraine, the EU has temporarily relaxed its budgetary rules . This approach worked. Thanks to economic support measures taken at national and European level, millions of people have been able to keep their jobs.
But this success should not hide the negative consequences of a prolonged period of budgetary support. Public debt has increased, reaching worrying levels in some countries. We must now address this, because sound public finances are the precondition for sustained economic growth. By building up fiscal reserves in good times, we will be better prepared for future crises.
Sound management of public finances is particularly important given the economic and fiscal outlook for the coming decade. We are indeed faced with a series of common challenges. Green and digital transitions and the need to strengthen Europe’s security capability will require significant long-term public investment. These efforts will have to be made while financing conditions will be much less favorable than during the previous decade. Added to this is the aging of the population which will weigh more and more on State budgets.
Simpler, more realistic
Sound public finances will be needed to meet these new challenges. How to get there ? By jointly defining credible budgetary rules, associated with a commitment on the part of the Member States to respect them and with effective tools allowing their proper application.
The Commission’s proposals aim to guide these new rules on the basis of the following principles: first, account must be taken of national situations and the specific challenges that each country faces in terms of public debt. A one-size-fits-all approach will not work. Rules that set the same targets and require the same pace of fiscal adjustment for everyone will be neither effective nor acceptable.
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