EU agrees on looser fiscal rules to cut debt, boost investments

EU member States and MEPs strike preliminary deal to ease fiscal rules, giving more time to reduce debt and boost public investments.

EU member States and MEPs struck a preliminary deal on February 10 to ease the bloc's stringent fiscal rules, giving Governments more time to reduce debt and incentives to boost public investments in climate, industrial policy and security.

The latest revamp of two-decades-old rules known as the Stability and Growth Pact came after some EU countries racked up record high debt as they increased spending to help their economies recover from the Covid-19 pandemic, and as the bloc announced ambitious green, industrial and defence goals.

The new rules set minimum deficit and debt reduction targets but these are less ambitious than previous figures.

"At a time of significant economic and geopolitical challenge, the new rules will allow us to address today's new realities and give EU member states clarity and predictability on their fiscal policies for the years ahead," European Commission Vice-President Valdis Dombrovskis said in a statement.

"These rules will improve the sustainability of public finances and promote sustainable growth by incentivising investment and reforms," he said.

Commenting on the deal, MEP Margarida Marques said: "With a case-by-case and medium-term approach, coupled with increased ownership, member states will be better equipped to prevent austerity policies."

The revised rules allow countries with excessive borrowing to reduce their debt on average by 1% per year if it is above 90% of gross domestic product (GDP), and by 0.5% per year on average if the debt pile is between 60% and 90% of GDP.