COMMUNICATION FROM THE COMMISSION TO THE COUNCIL Fiscal policy guidance for 2023
Date: 2022-03-02
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Ukraine, coronavirus disease, economic consequence, economic forecasting, economic policy, economic situation, epidemic, fiscal policy, stability programme, war

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  EN 

   EUROPEAN COMMISSION  Brussels, 2.3.2022  COM(2022) 85 final  COMMUNICATION FROM THE COMMISSION TO THE COUNCIL Fiscal policy guidance for 2023  
 
 
COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

Fiscal policy guidance for 2023 

1.  Introduction 

The  invasion  of  Ukraine  by  Russia  undermined  European  and  global  security  and 
stability. The latest  events  are  a watershed moment  for Europe, fundamentally  putting into 
question  our peace order.  The EU  stands together with  Ukraine in  solidarity politically and 
economically. In response to the unprovoked and unjustified military actions by Russia, the 
EU  has  approved  a  package  of  massive  and  targeted  sanctions  that  will  have  maximum 
impact on the Russian economy and the political elite. At the same time, the EU is faced with 
some immediate challenges, notably on refugee flows, security and possible countermeasures 
by Russia. This crisis risks to impact growth negatively, including through the repercussions 
on financial markets, further energy price pressures, persistent supply chain bottlenecks and 
confidence effects.   

Exceptional  uncertainty  and  risks  call  for  strong  coordination  of  economic  and  fiscal 
policies  to  transition  out  of  the  COVID-19  crisis.  A  bold,  coordinated  fiscal  policy 
response  to  the  pandemic,  unprecedented  support  from  new  EU  instruments  and  the 
accommodative  monetary  policy  have  helped  the  EU  economy  weather  the  crisis  and  are 
underpinning the recovery. In the third quarter of 2021, the EU was back to its pre-crisis level 
of  GDP;  output  was  expected  by  the  Commission  2022  winter  forecast  to  surpass  pre-
pandemic  levels  in  all  Member  States  by  end-2022.  Moving  forward,  fiscal  policy  should 
continue to  be closely coordinated to  ensure fiscal  sustainability and, together with  broader 
economic policies, help to sustain the recovery and shift the European economy to a path of 
stronger and sustainable growth notwithstanding the deteriorated global environment.  

Fiscal policies need to stand ready to react to the rapidly changing circumstances. The 
policy environment is evolving. Pandemic-related temporary emergency measures are set to 
be  mostly  phased  out  in  2022,  consistent  with  the  progressive  normalisation  of  the  public 
health  situations. (1)  The  near-term  inflation  outlook  points  to  a gradual  normalisation  of 
monetary policy. However, the invasion of Ukraine is expected to have a negative impact on 
the  outlook,  which  has  become  more  uncertain  with  risks  tilted  to  the  downside.  The  so-
called  “general  escape  clause”  of  the  Stability  and  Growth  Pact  (SGP)  (2)  will  continue  to 
apply in 2022. This will allow fiscal policy to adjust to the evolving situation to address the 
immediate  challenges  posed  by  this  crisis.  On  the  basis  of  the  Commission  2022  winter 
forecast, the general escape clause is expected to be deactivated as of 2023. (3) This will be 

(1)   European  Commission  (2021)  ‘2022  Draft  Budgetary  Plans:  Overall  Assessment,’  COM(2021)  900  final  of  24 

November 2021. 

(2)   Specific  provisions  in  the  EU  fiscal  rules  allow  for  a  coordinated  and  orderly  temporary  deviation  from  the  normal 
requirements for all Member States in a situation of generalised crisis caused by a severe economic downturn of the euro 
area  or  the  EU  as  a  whole  (see  art.  5(1),  6(3),  9(1)  and  10(3)  of  Regulation  (EC)  1466/97  and  art.  3(5)  and  5(2)  of 
Regulation (EC) 1467/97).  

(3)   The  general  escape  clause  was  activated  by  the  endorsement  of  the  European  Commission’s  Communication  to  the 
Council  on  the  activation  of  the  general  escape  clause  of  the  Stability  and  Growth  Pact,  COM(2020)  123  final  of  23 

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reassessed  on  the  basis  of  the  Commission  2022  spring  forecast  in  view  of  the  high 
uncertainty.  Finally,  the  debate  on  the  economic  governance  framework  was  relaunched  in 
October 2021 with  a view to building a broad-based consensus on the way forward well in 
time for 2023. (4) 

This  Communication  provides  Member  States  with  guidance  on  the  conduct  and 
coordination of fiscal policy, contingent on the evolving economic outlook. The guidance 
takes into account the positive experience with the similar guidance provided in March 2021, 
which contributed to the continuous discussion in the Council, the Eurogroup and with other 
EU and international stakeholders on the appropriate fiscal policy response and its adaptation. 
The principles reflect the Commission 2022 winter forecast and should guide Member States’ 
forthcoming  Stability  and  Convergence  programmes.  The  guidance  will  be  adjusted  to 
economic developments as needed and at the latest in the Commission’s European Semester 
spring package in late May 2022.  

The  remainder  of  the  Communication  consists  of  four  sections.  Section  2  sketches  the 
economic  outlook  for  2022  and  2023.  Section  3  sets  out  five  principles,  and  draws 
implications, based on the Commission 2022 winter forecast, for the fiscal recommendations 
to be proposed to Member States in May 2022 for their budgetary plans in 2023. Section  4 
summarises the state of play on the economic governance review. Section 5 outlines the next 
steps. 

2.  Economic situation and outlook 

The EU economy has entered the third year of the COVID-19 pandemic having closed 
the gap with its pre-pandemic output levels. The EU economy rebounded strongly in 2021 
and  unemployment  reached  a  record  low,  but  the  pace  of  expansion  weakened  towards  the 
end  of  the  year.  The  emergence  of  the  Omicron  variant  led  to  reintroduction  of  mobility 
restrictions,  renewed  stress  on  healthcare  systems,  and  labour  shortages  due  to  sickness, 
quarantine and care duties. Prolonged supply disruptions coupled with strong demand pushed 
up commodity and energy prices. These adverse developments dented the growth momentum 
in the EU, with real GDP growth slowing in the last quarter of 2021.  

The Commission  2022  winter  forecast projected the  robust  economic expansion of the 
European  economy  to  continue,  albeit  on  a  weaker  footing  going  into  2022  and  2023. 
After  a  soft  patch,  the  economic  expansion  was  set  to  regain  pace  in  the  second  quarter  of 
2022 and remain robust over the forecast horizon. Fundamentals underpinning the expansion 
continued to be strong. An improving labour market, high household savings, still favourable 
financing  conditions,  and  the  deployment  of  the  Recovery  and  Resilience  Facility  (RRF) 
funds  were  all  set  to  sustain  a  prolonged  and  robust  expansionary  phase.  According  to  the 
winter forecast, EU real GDP growth was expected to reach 4.0% in 2022, 1.3 pp. lower than 

March  2020.  The  decision on  its  deactivation  is based on  an  overall  assessment  of  the  state of  the  economy,  with  the 
level  of  economic  activity  in  the  EU  or  euro  area  compared  to  pre-crisis  levels  (end-2019)  as  the  key  quantitative 
criterion.  European  Commission  (2021)  ‘One  year  since  the  outbreak  of  COVID-19:  fiscal  policy  response’, 
COM(2021)105 final of 3 March 2021, pp. 7-8 and p. 14. 

(4)  European Commission (2021) ‘The EU economy after COVID-19: implications for economic governance,’ COM(2021) 

662 final of 19 October 2021. 

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in  2021  but  still  well  above  the  long-term  average.  The  winter  forecast  (5)  projected  the 
‘return to normalcy’ to continue in 2023, when growth was expected to moderate to 2.8%.  

The  winter  forecast  did  not  factor  in  the  invasion  of  Ukraine  and  the  ensuing 
geopolitical tensions. This impacts negatively the growth outlook and tilts the risks further to 
the  downside.  For  example,  inflation  may  turn  out  higher  than  expected  as  a  result  of  cost 
pressures stemming from supply-side bottlenecks. Higher energy prices being passed on from 
producer  to  consumer  prices  to  a  larger  extent,  may  weigh  on  aggregate  demand.  Global 
supply  bottlenecks  are  likely  to  persist  well  into  2022.  In  addition,  higher  than  expected 
second-round effects from potentially above-productivity wage increases may keep inflation 
high  over  a  longer  period.    On  the  upside,  investments  fostered  by  the  RRF  and  the 
Multiannual Financial Framework (MFF) funds, including EU Cohesion policy funds, could 
generate a stronger impulse to activity. 

3.  Main principles and implications for fiscal guidance  

This section sets out the key principles that will guide the Commission’s assessment of 
Member  States’  Stability  and  Convergence  programmes.  Implications  for  fiscal 
recommendations to be proposed to Member States in May 2022 for their budgetary plans for 
2023 are based on the winter forecast. The Commission will closely monitor the situation and 
adjust its policy guidance as needed.   

Fiscal  recommendations  for  2023  will  be  formulated  in  qualitative  terms  with 
a quantitative  underpinning.  Given  the  specific  economic  conditions  and  the  ensuing 
difficulties  in  estimating  output  gaps  as  well  as  structural  balances,  the  Commission  will 
propose,  in  spring,  as  last  year,  country-specific  fiscal  policy  guidance  building  on  the 
approach  taken  for  the  fiscal  recommendation  for  2022,  on  limiting  the  growth  of  current 
expenditure and  looking at  the quality  and composition  of public finances. This  will be the 
basis for the Commission’s monitoring of the fiscal outcomes against the recommendations. 
The  euro  area  Member  States’  budgets  for  2023  will  be  assessed  in  the  autumn  in  the 
Commission Opinions on the Draft Budgetary Plans. 

Principle #1: Ensure policy coordination and a consistent policy mix 

Fiscal policy coordination remains key. The coordinated fiscal response of Member States 
to  the  COVID-19  severe  economic  downturn,  facilitated  by  the  activation  of  the  general 
escape clause and flanked by  EU-level  actions,  has been highly  successful  in  mitigating its 
economic  impact.  A  continued  strong  coordination  of  fiscal  policies  is  needed  to  ensure 
smooth transition towards a new and sustainable growth path and fiscal sustainability.  

The  appropriate  fiscal  stance  for  the  euro  area  should  result  from  a  proper  balance 
between  sustainability  and  stabilisation  considerations.  It  is  essential  to  achieve  such 
articulation  at  the  country  level  and  taking  into  consideration  the  euro  area/EU  dimension. 
While  the  economy  still  benefits  from  solid  fundamentals  and  support  by  the  EU  funds, 
notably  the  RRF,  the  gradual  phasing  out  of  the  measures  taken  to  support  the  economy 

(5)   The Commission 2022 winter forecast was released on 10 February with a cut-off date of 1 February 2022.  

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during the pandemic will remove an important tailwind in 2023 on aggregate. The timing and 
pace  of  fiscal  policy  normalisation  should  also  give  consideration  to  interactions  with 
monetary and financial sector policies and the fiscal impulse coming from the RRF (6).   

Based on the winter forecast, the Commission is of the view that transitioning from an 
aggregate  supportive  fiscal  stance  in  2020-2022  to  a  broadly  neutral  aggregate  fiscal 
stance  appears  appropriate  in  2023,  while  standing  ready  to  react  to  the  evolving 
economic situation.  

Principle  #2:  Ensure  debt  sustainability  through  a  gradual  and  high-quality  fiscal 
adjustment and economic growth 

Public debt ratios are high and have increased as a result of the pandemic. The necessary 
fiscal response to the COVID-19 pandemic  and the contraction in output have  resulted in a 
significant increase in government debt ratios, in particular in some high-debt Member States, 
though  without  rising  debt  servicing  costs.  The  EU  aggregate  public  debt  ratio  peaked  at 
about 92% of GDP in 2021 and is expected to fall only slightly to 89% of GDP in 2023. At 
the  same  time,  divergence  between  Member  States  remains  high.  Public  debt  ratios  are 
expected to remain above 100% of GDP in six Member States in 2023 while staying below 
60% of GDP in about half of Member States.  

Under  unchanged  policies,  the  EU  public  debt  ratio  would  broadly  stabilise  over  the 
next  ten  years  but  remain  on  an  increasing  path  in  several  high-debt  Member  States. 
Several  factors  will  shape  debt  dynamics.  On  the  one  hand,  risks  associated  with  higher 
public debt are compounded by other challenges, including the projected costs of ageing and 
the contingent liabilities (in the form of guarantees) granted during the COVID-19 crisis. On 
the  other  hand,  debt  dynamics  in  2021  have  generally  been  better  than  expected.  Low 
financing  costs  and  favourable  growth  prospects,  thanks  partly  to  the  expected  positive 
impact  of  investments  and  reforms  on  potential  growth  in  the  medium  term,  are  mitigating 
factors.  The  magnitude  of  this  impact  depends  on  the  evolution  of  growth-interest  rate 
differentials, which remain uncertain.   

Multi-year fiscal adjustment combined with investment and reforms to sustain growth 
potential is needed to curb debt dynamics. Ensuring sustainable public finances through a 
gradual reduction of high public debt is important. Some Member States risk emerging from 
the crisis with higher spending ratios and lower revenue ratios (as a share of GDP). Failing to 
reduce debt in the medium term in high-debt countries would weigh on growth prospects and 
deepen  cross-country  divergences.  By  exposing  the  public  accounts  to  unfavourable 
development  in  financial  markets,  it  could  be  detrimental  to  the  overall  resilience  of  the 
economies.  The  sensitivity  of  debt  dynamics  to  the  evolution  in  financing  conditions  is 
relevant to determine the necessary degree and pace of adjustment. Successful debt reduction 
strategies should focus on fiscal consolidation, the quality and composition of public finances 
and  promoting  growth.  A  too  abrupt  consolidation  would  undermine  the  ongoing  recovery, 

(6)   While  RRF  grants  will  continue to  support  the  economy  each  year,  the  annual  fiscal  impulse  provided  by  the  RRF  is 

measuring the difference in RRF grants absorbed from one year to the next. 

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with  negative  effects  on  potential  growth,  market  sentiment  and  financing  costs,  ultimately 
being self-defeating for debt sustainability. 

Based on the winter forecast, the Commission is of the view that starting a gradual fiscal 
adjustment  to  reduce  high  public  debt  as  of  2023  is  advisable,  while  a  too  abrupt 
consolidation could negatively impact growth and, thereby, debt sustainability.  

Principle #3: Foster investment and promote sustainable growth  

Shifting  the  European  economies  onto  a  higher  sustainable  growth  path  and  tackling 
the  challenges  of  the  twin  transitions  should  be  top  of  the  agenda  in  all  Member 
States. (7)  Estimates  by  the  European  Commission  and  other  organisations  point  to  large 
investment needs to meet the EU climate and digital objectives. Delivering on the Green Deal 
objectives  requires  additional public and private  investment  of €520 billion a year in 2021-
2030. The investment gap to deliver on a digital transformation in the EU is estimated to be 
about €125 billion per year during the next decade. Most of those investment will need to be 
mobilised  by  the  private  sector.  However,  the  public  sector  also  needs  to  play  its  part  to 
provide  complementary  funding  to  support  policies,  de-risk  innovative  projects,  guide  and 
crowd in private investment and overcome market failure. The Communication on a future-
proof  European  growth  model  underlines  the  importance  of  a  coordinated  action  by  all 
relevant  actors,  including  the  EU,  Member  States  and  the  private  sector  in  activating  all 
available policy levers. (8) Ensuring the coherence between investment and reform policies in 
Member States and between national and EU objectives is key.  

The RRF and the MFF funds will support public investment and reforms in the coming 
years. The RRF—the centrepiece of the NextGenerationEU—is providing EUR 338 billion 
in  non-repayable  support  (“grants”)  and  up  to  EUR  386  billion  in  loans  (both  amounts  in 
current prices) up to 2026. RRF financing will help build resilience; make progress towards 
our  environmental  and  digital  goals;  and  strengthen  cohesion,  productivity  and 
competitiveness. So far, 22 EU countries have received the green light for their Recovery and 
Resilience  Plans  and  pre-financing  payments  were  made  for  the  21  among  them  who  so 
requested.  The  disbursement  of  RRF  grants  is  planned  to  be  frontloaded,  with  about  two-
thirds of grants paid out by the end of 2023. (9) The expenditure financed by RRF grants will 
make  it  possible  to  fund  high-quality  investment  projects  and  cover  costs  of  productivity-
enhancing  reforms  without  giving  rise  to  higher  deficits  and  debt.  Swift  implementation  of 
the  RRPs  will  thus  promote  a  sustained  and  sustainable  recovery,  foster  higher  potential 
growth  and  support  a  gradual  improvement  of  fiscal  positions,  including  in  Member  States 

(7)  The  EU’s  current  economic  and  employment  policy  priorities  are  structured  around  four  dimensions:  environmental 
sustainability,  productivity,  fairness,  macroeconomic  stability.  See  European  Commission  (2021)  ‘Annual  Sustainable 
Growth Survey 2022,’ COM(2021) 740 final of 21 November 2021. 

(8)  European  Commission  (2022)  ‘The  future-proof  European  growth  model:  towards  the  green,  digital  and  resilient 

economy.’ 

(9)   To  date,  the  22  RRPs  approved by  the  Council  amount  to  EUR 291  billion  in non-repayable  financing  and  EUR 154 
billion in loans. Six Member States have an adopted plan including a loan (Cyprus, Greece, Italy, Portugal, Romania and 
Slovenia). As foreseen in Article 18 of the RRF Regulation ((EU) 2021/241), the calculation of the maximum financial 
contribution  of  RRF  non-repayable  support  will  be  updated  by  30  June  2022.  See  European  Commission  (2022), 
‘Annual report on the Recovery and Resilience Facility.’ 

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with  the  highest  public  debt  ratios.  The  approval  of  the  new  generation  of  EU  Cohesion 
policy funds will further enhance investment, fostering the twin transition and the resilience 
across the territory of the Union. 

All  Member  States  should  protect  overall  investment  and,  where  justified,  expand 
nationally  financed  investment,  in  particular  for  the  green,  digital  and  resilient 
transition. Emphasis should be put on a high quality of investment, in line with investment 
financed from the RRF. Fiscal policies should be reoriented to support the twin transition in 
order to achieve sustained and sustainable growth. Where necessary, for example in response 
to  declining  RRF  contributions,  Member  States  should  expand  nationally-financed 
investment, in particular for the twin transitions. The fiscal adjustment by high-debt Member 
States should not weigh on investment and rather be delivered through limiting the growth of 
nationally-financed current expenditure.  

In  the  view  of  the  Commission,  nationally  financed  high  quality  public  investment 
should  be  promoted  and  protected  in  medium-term  fiscal  plans  since  promoting  a 
resilient  economy  and  tackling  the  challenges  of  the  twin  transition  are  common  key 
policy objectives for 2023 and beyond. 

Principle  #4:  Promote  fiscal  strategies  consistent  with  a  medium-term  approach  to  fiscal 
adjustment, taking account of the RRF 

Fiscal adjustment in high-debt Member States should be gradual, not lead to an overly 
restrictive fiscal stance, and be underpinned by  investment and reforms  that relaunch 
growth  potential,  facilitating  the  attainment  of  credible  downward  debt  trajectories. 
Gradual  and  persistent  fiscal  adjustment  efforts  should  go  hand-in-hand  with  an  improved 
composition  of  public  finances  to  achieve  medium-term  debt  reduction.  The  medium-term 
plans need to  be consistent  with  Member States’  debt  sustainability  analysis. (10)  The plans 
should  be  underpinned  with  concrete  references  to  their  planned  investments  and  reforms, 
and  should  account  for  the  expected  timeline  of disbursement  of  EU  funds  (including  RRF 
grants).  For  the  period  beyond  2023,  these  medium-term  plans  should  focus  on  pursuing 
fiscal consolidation to achieve medium-term prudent fiscal positions in a gradual, sustained 
and growth-friendly manner. The plans should specify in detail the underlying measures and 
the accompanying reforms and investments. 

The path of fiscal policy adjustment should account for the effects of the RRF support 
on economic activity. The RRF grants will continue to provide significant fiscal support to 
growth  in  aggregate  demand  until  the  peak  of  the  payment  profile  of  each  Member  State’s 
plans, which will be subsequently reduced. Medium term fiscal plans should account for this.  

Consolidation should not be unduly delayed. When a fiscal adjustment is needed, delaying 
it  to  later  years  increases  implementation  risks  and  often  leads  to  difficulties  in  achieving 
medium-term  budgetary  targets  set  out  in  Member  States’  Stability  and  Convergence 
programmes. In addition, implementing a back-loaded fiscal strategy is also associated with 

(10)  Code of Conduct of the Stability and Growth Pact (2017) http://data.consilium.europa.eu/doc/document/ST-9344-2017-

INIT/en/pdf 

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governments  using  positive  growth  surprises  and  budgetary  windfalls  for  higher  current 
expenditure or tax cuts, rather than accelerated debt reduction. It often entails that buffers are 
not rebuilt when economic conditions allow to do so. 

In  the  view  of  the  Commission,  Stability  and  Convergence  programmes  should 
demonstrate  how  Member  States’  medium-term  fiscal  plans  ensure  a  gradual 
downward  path  of  public  debt  to  prudent  levels  and  sustainable  growth  through 
gradual consolidation, investment and reforms.  

Principle #5: Differentiate fiscal strategies and take into account the euro area dimension   

As  of  2023,  starting  a  gradual  fiscal  adjustment  in  high-debt  Member  States  is 
necessary  to  stabilise  and  then  reduce  debt  ratios.  When  economic  conditions  allow,  it 
remains important to rebuild fiscal buffers and resume a path of reduction in public debt-to-
GDP  ratios  with  a  view  to  enhancing  resilience  against  future  shocks,  retaining  favourable 
financing  conditions  and  ensuring  the  smooth  functioning  of  the  euro  area  in  view  of 
potential spillovers.  Based on the Commission 2022 winter  forecast,  for  high-debt Member 
States, a gradual  improvement of their underlying fiscal  positions  appears appropriate as of 
2023. To achieve this, nationally-financed current expenditure (net of discretionary revenue 
measures) should grow more slowly than medium-term potential output (as measured by the 
expenditure  benchmark).  High-debt  Member  States  should  continue  to  promote  investment 
needed  for  the  twin  transition  and  implement  the  fiscal  adjustment  on  nationally-financed 
current  expenditure.  This  strategy  should  be  supported  by  a  timely  implementation  of  the 
RRPs.  Any  windfall  revenues,  including  from  upside  growth  surprises,  should  be  used  for 
debt reduction. 

Low/medium debt  Member States should prioritise investment for the twin transition.  
Member  States  with  low/medium  debt  are  generally  characterised  by  sound  budgetary 
positions.  (11)  Expanding  public  investment  for  the  twin  transitions  should  be  prioritised, 
where  necessary  (for  example,  in  response  to  declining  RRF  contributions)  by  nationally-
financed investment growing faster than medium-term potential output. The development in 
current expenditure should be in line with preserving an overall neutral policy stance, hence 
not delivering a fiscal adjustment in 2023, unless signs of excess demand would call for agile 
fiscal  policies  to  control  its  growth,  or  conversely,  a  deteriorated  economic  outlook  would 
necessitate  additional  spending.  This  will  contribute  to  preserving  an  appropriate  policy 
stance  for  the  euro  area  as  whole,  as  spillovers  from  a  premature  fiscal  retrenchment  in 
low/medium debt Member States could unduly reduce aggregate demand in the euro area and 
make it more difficult for high-debt Member States to implement fiscal adjustment.  

In  the  view  of  the  Commission,  fiscal  recommendations  should  continue  to  be 
differentiated  across  Member  States  and  take  into  account  possible  cross-country 
spillovers.  National  fiscal  adjustment  –  where  needed  –  should  be  delivered  in  a  way 
that improves the composition of expenditure, protecting overall investment. 

(11)  Even a very modest path of adjustment would rapidly lead to budget surpluses in some of these Member States according 

to Commission’s simulations. 

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Implications for excessive deficit procedure (EDP)  

The  Commission  will  not  propose  to  open  new  EDPs  in  spring  2022.  The  COVID-19 
pandemic continues to have an extraordinary macroeconomic and fiscal impact that, together 
with the current geopolitical situation, create exceptional uncertainty, including for designing 
a detailed path for fiscal policy. On these grounds, the Commission considers that a decision 
on whether to place Member States under the EDP should not be taken in spring 2022. 

The  Commission  will  re-assess  the  relevance  of  proposing  to  open  EDPs  in  autumn 
2022. Member  States  with  a  planned  breach  of  the  deficit  threshold  in  2023  and  beyond 
should outline their planned policy measures to bring the deficit below the reference value, so 
that  this  will  be  taken  into  account  as  part  of  the  assessment  of  relevant  factors  as 
appropriate. (12) As regards Member States with a debt ratio above the 60% of GDP reference 
value,  the  Commission  will  consider,  within  its  assessment  of  all  relevant  factors,  that 
compliance  with  the  debt  reduction  benchmark  would  imply  a  too  demanding  frontloaded 
fiscal  effort  that  risks  to  jeopardise  growth.  Therefore,  in  the  view  of  the  Commission, 
compliance with the debt reduction benchmark is not warranted under the current exceptional 
economic conditions. At the same time, the monitoring of debt and deficit developments will 
continue  and  the  Commission  will  re-assess  the  relevance  of  proposing  to  open  EDPs  in 
autumn 2022.   

4.  The state of play on the economic governance review 

In  October  2021,  the  Commission  relaunched  the  public  debate  on  the  review  of  the 
EU's  economic  governance  framework,  inviting  the  other  institutions  and  all  key 
stakeholders to engage.  The debate is ongoing, drawing on both the Commission’s view of 
the effectiveness of the economic surveillance framework presented in February 2020 and the 
lessons learnt from the COVID-19 crisis. The public debate about the EU fiscal framework 
focuses  on  the  challenge  of  a  gradual,  sustained  and  growth-friendly  reduction  to  prudent 
debt levels; the need to sustain public investment at high levels for years to come, including 
those for the twin transition and to enhance resilience; the importance of a good composition 
and  quality  of  public  finances,  the  need  for  counter-cyclical  fiscal  policy  and  for  creating 
fiscal room for stabilisation; the importance of strong policy coordination between different 
policy  tools  and  between  the  EU  and  national  levels;  and  the  need  to  simplify  the  EU 
framework  and  to  ensure  effective  enforcement  of  the  EU  fiscal  framework.  The  debate  is 
taking  place  through  various  fora,  including  dedicated  meetings,  workshops  and  an  online 
survey.  This  inclusive  discussion  involves  citizens  and  a  wide  range  of  stakeholders,  in 
particular  social  partners,  academia,  other  EU  institutions  and  bodies,  and  national 
governments  and  parliaments,  amongst  others.  The  online  survey  closed  on  31  December 
2021. The Commission is currently analysing the submissions it has received and will come 
forward with a summary report in March 2022. The engagement with stakeholders on how to 

(12)  The appropriate relevant factors are specified in Article 2 of Regulation 1467/97. In principle, a deficit-based EDP can 

only be avoided if the excessive deficit is temporary, exceptional and close to the reference value.   

8 

 
 
                                                 
enhance the effectiveness of the economic governance framework continues in order to build 
consensus on its future. 

The ongoing debate is also providing Member States with an opportunity to reflect on 
the key objectives of the governance framework, its functioning and new challenges to 
factor in. Discussions are taking place mainly in the Economic and Financial Committee and 
the Economic Policy Committee, but also at ministerial level in the Council (ECOFIN) and 
among euro area members in  the Eurogroup for  specific euro area aspects. The discussions 
are  being  organised  around  a  limited  number  of  key  themes,  in  line  with  the  challenges 
identified  in  the  Communication  of  October  2021  and  the  key  topics  of  the  public  debate. 
These include sustainability of public debt and growth-friendly debt reduction; protection of 
public  investment  and  the  role  of  the  fiscal  framework  in  fostering  public  investment  and 
reforms in light of the transition to a green, digital and resilient EU economy; reflections on 
the lessons learned from the COVID-19 crisis response (including the RRF); counter-cyclical 
fiscal  policies  and  creating  room  for  short-term  stabilisation;  and  how  to  simplify  fiscal 
frameworks, achieve stronger national ownership and better enforcement. The potential long-
term  implications  from  the  invasion  of  Ukraine  for  resilience  and  security  have  also  been 
raised.  In  addition,  there  are  discussions  among  euro  area  members  on  specific  euro  area 
aspects. In the coming months further discussions are planned with key stakeholders (e.g. the 
European  Fiscal  Board)  and  with  academics/experts.  Wrap-up  discussions  are  currently 
planned to be held in July, both at ministerial level in the Council (ECOFIN) and among euro 
area members in the Eurogroup. 

Based  on  the  ongoing  public  debate  and  the  discussions  with  Member  States,  the 
Commission will  provide orientations on possible changes to the economic governance 
framework with the objective of achieving a broad-based consensus on the way forward 
well  in  time  for  2023.  In  the  view  of  the  Commission,  the  current  state  of  play  of  the 
discussions  points  to  a  number  of  key  issues,  where  further  and  more  concrete  work  could 
pave the way for an emerging consensus for the future EU fiscal framework.  

  Ensuring  debt  sustainability  and  promoting  sustainable  growth  through 
investment  and  reforms  are  key  to  the  success  of  the  EU  fiscal  framework. 
Ensuring fiscal sustainability by reducing high public debt ratios in a realistic, gradual 
and  sustained  manner  is  central.  The  EU  fiscal  framework  should  incentivise 
successful  medium-term  debt  reduction  strategies,  focusing  on  fiscal  consolidation, 
the quality and composition of public finances and promoting growth. The framework 
should be consistent with today and tomorrow’s challenges, including an appropriate 
role in helping to sustain adequate levels of investment. Public investment will need 
to  be  sustained  at  high  levels  for  years  to  come,  highlighting  the  importance  of 
promoting  a  good  composition  and  quality  of  public  finances  to  ensure  sustainable 
and  inclusive  growth.  The  EU  fiscal  framework  should  play  an  appropriate  role  in 
incentivising national investment and reforms, paying particular attention to ensuring 
the coherence between investment and reform policies in Member States and between 
national and EU objectives. 

9 

 
 
  More  attention  to  the  medium-term  in  the  EU  fiscal  surveillance  appears  as  a 
promising  avenue.  Member  States’  fiscal  performance  should  continue  to  be 
monitored  every  year,  retaining  the  positive  elements  of  multilateral  fiscal 
coordination.  At  the  same  time,  subject  to  clear  EU  level  guidance,  more  scope  for 
Member  States  to  set  and  implement  their  fiscal  adjustment  plan  in  a  medium  term 
perspective,  incorporating  their  investment  and  reform  agendas  into  their  fiscal 
trajectory, could strengthen ownership and thus compliance.  

  It  should  be  further  discussed  what  insights  can  be  drawn  from  the  design, 
governance and operation of the RRF. The focus should be on lessons with regard 
to  improving  ownership,  mutual  trust,  enforcement  and  the  interplay  between  the 
economic  and  fiscal  dimensions,  and  the  EU  and  national  dimensions.  The  RRF’s 
commitment-based  approach  to  policy  coordination,  with  strong  national  ownership 
of policy design and outcomes, and based on ex-ante guidance to Member States on 
investment and reform priorities, merits consideration. The European Semester should 
remain  the  reference  framework  for  conducting  integrated  surveillance  and  the 
coordination of economic and employment policies in the EU.  

  Simplification,  stronger  national  ownership  and  better  enforcement  are  key 
objectives.  The  current  framework  relies  on  non-observable  variables  that  are 
sensitive to change and affected by cyclical conditions. It also includes a complex set 
of  interpretative  provisions,  including  various  flexibility  clauses,  that  render  the 
application  of  the  framework  complex  and  hampers  transparency.  This  calls  for 
simpler  fiscal  rules  using  one  operational  rule  at  the  EU  level  with  observable 
indicators,  such  as  a  net  expenditure  aggregate,  for  assessing  compliance.  It  also 
includes considering whether a clear focus on ‘gross policy errors’, as set out in the 
Treaty, could contribute to a more effective implementation of the framework. These 
goals  are  interconnected.  In  particular,  a  simpler  framework  would  improve  the 
readability  of  EU  budgetary  surveillance  and 
to  clearer 
communication,  increased  ownership,  better  compliance  and  stronger  enforcement. 
Moreover,  were  more  scope  to  be  given  to  Member  States  for  the  design  of  fiscal 
trajectories,  a  balance  should  be  found  with  a  more  stringent  enforcement  of  the 
framework by the Commission and the Council in case of non-compliance. 

thereby  contribute 

5.  Next steps 

This Communication sets out preliminary fiscal policy guidance for 2023 which will be 
updated as necessary at the latest as part of the European Semester Spring package in 
May  2022.  Future  guidance  will  continue  to  reflect  the  global  economic  situation,  the 
specific  situation  of  each  Member  State  and  the  discussion  on  the  economic  governance 
framework.  The  development  of  the  economic  outlook  will  be  monitored  closely  and  duly 
taken into consideration. Member States are invited to reflect this guidance in their Stability 
and Convergence programmes.  

10 

 
 
 
 
List  of  additional  tables  to  be  provided  in  Member  States’  Stability  and  Convergence 
programmes. Compulsory data are marked in bold. 

Appendix 

Table of the RRF impact on programme's projections - LOANS  

Cash flow from RRF loans projected in the programme (% of GDP) 
2023 

2020 

2021 

2022 

2024 

2025 

2026 

Disbursements of RRF loans from EU 
Repayments of RRF loans to EU 

Compensation of employees D.1 
Intermediate consumption P.2 
Social payments D.62+D.632 
Interest expenditure D.41 
Subsidies, payable D.3 
Current transfers D.7 
TOTAL CURRENT EXPENDITURE 
Gross fixed capital formation P.51g 
Capital transfers D.9 
TOTAL CAPITAL EXPENDITURE 

Reduction in tax revenue 
Other costs with impact on revenue 
Financial transactions 

Expenditure financed by RRF loans (% of GDP) 

2020 

2021 

2022 

2023 

2024 

2025 

2026 

Other costs financed by RRF loans (% of GDP)1 

2020 

2021 

2022 

2023 

2024 

2025 

2026 

Table of the RRF impact on programme's projections - GRANTS  

Revenue from RRF grants (% of GDP) 

2020 

2021 

2022 

2023 

2024 

2025 

2026 

RRF grants as included in the revenue projections 
Cash disbursements of RRF grants from EU 

Expenditure financed by RRF grants (% of GDP) 

2020 

2021 

2022 

2023 

2024 

2025 

2026 

Compensation of employees D.1 
Intermediate consumption P.2 
Social payments D.62+D.632 
Interest expenditure D.41 
Subsidies, payable D.3 
Current transfers D.7 
TOTAL CURRENT EXPENDITURE 
Gross fixed capital formation P.51g 
Capital transfers D.9 
TOTAL CAPITAL EXPENDITURE 

Reduction in tax revenue 
Other costs with impact on revenue 
Financial transactions 

Other costs financed by RRF grants (% of GDP)1 

2020 

2021 

2022 

2023 

2024 

2025 

2026 

Maximum amount 
of contingent 

liabilities                     

(% of GDP) 

Estimated  

take-up          

(% of GDP) 

Table on the stock of guarantees adopted/announced according to the Programme 

Measures 

Date of adoption 

In response to COVID-19 

Others 

Subtotal      

Subtotal  

Total 

Note: This table replaces Table 7 in the Code of Conduct on the SGP.   

11