The European Union (EU) and the governments of its member states have reached an agreement on common rules for budget deficits and national debt, taking into account the current economic situation. The EU’s targets for reducing excessive deficits and debt levels will be tailored to the individual circumstances of each member country. Additionally, clear minimum requirements for reducing debt ratios among highly indebted countries will be established.
The EU has long had a rule in place stating that a member state’s debt level must not exceed 60 percent of their economic output, and the general government financing deficit must be kept to a minimum of three percent of the respective gross domestic product (GDP). However, due to the impact of the Corona crisis and the Russian attack on Ukraine, these requirements have been temporarily suspended. If a state violates the three percent deficit limit, they will face an annual fine of at least 0.5 percent of GDP.
The agreement was based on proposals from the EU Commission. Critics argue that these reforms weaken what is known as the Stability Pact too much. The reform must first be approved by the EU Council of Ministers and the plenary session of the European Parliament before it can take effect. Typically, this is a formality.