Proposal for a COUNCIL REGULATION amending Regulation (EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure
Date: 2023-04-26
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: budget deficit, budgetary control, budgetary discipline (EU), economic convergence, financial control, gross domestic product, multilateral surveillance, public debt, stability pact

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   EUROPEAN COMMISSION  Brussels, 26.4.2023  COM(2023) 241 final 2023/0137 (CNS)  Proposal for a COUNCIL REGULATION amending Regulation (EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure  
 
EXPLANATORY MEMORANDUM 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

This  proposal  forms  part  of  a  package  and  aims  to  amend  Council  Regulation  (EC)  No 
1467/97  of  7  July  1997  on  speeding  up  and  clarifying  the  implementation  of  the  excessive 
deficit procedure1 (the corrective arm of the Stability and Growth Pact). It is accompanied by 
a proposal to replace Council Regulation No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies2  (the  preventive  arm  of  the  Stability  and  Growth  Pact),  as  well  as  by  a  proposal  to 
amend  Council  Directive  2011/85/EU  of  8 November  2011  on  requirements  for  budgetary 
frameworks  of  the  Member  States3.  The  package  therefore  aims  at  reforming  the  EU  fiscal 
framework.  

In  2011,  to  take  into  account  the  lessons  of  the  global  financial  crisis  and  the  euro  area 
sovereign debt  crisis, and as  part of the package known as the “Six-pack”, Regulation  (EC) 
No 1466/97 was amended by Regulation (EU) No 1175/20114, Regulation (EC) No 1467/97 
was amended by Regulation (EU) No 1177/20115, and Directive 2011/85/EU was adopted.  

Article  17a  of  Regulation  No  1467/97  contains  a  review  clause  whereby  every  5  years  the 
Commission is required to publish a report on the application of the Regulation, to evaluate: 
(i)  the  effectiveness  of  the  Regulation;  (ii)  the  progress  in  ensuring  closer  coordination  of 
economic  policies  and  sustained  convergence  of  economic  performances  of  the  Member 
States  in  accordance  with  the  TFEU,  accompanied,  where  appropriate,  by  a  proposal  for 
amendments  to  the  Regulation.  The  Commission  carried  out  a  review  of  the  Regulation  as 
part of the review of the EU economic governance framework launched in February 20206.  

The  review  of  the  EU  economic  governance  framework  was  based  on  an  extensive 
consultation of a wide range of stakeholders (EU institutions, citizens, national governments 
and  parliaments,  social  partners,  non-governmental  institutions  and  academia).  It  revealed  a 
number  of  strengths,  but  also  a  series  of  shortcomings  of  the  framework,  in  particular  an 
increased  complexity,  the  need  to  be  more  effective  in  reducing  debt  where  it  is  high  and 
build  buffers  for  future  shocks,  and  the  need  to  update  a  number  of  instruments  and 
procedures so as to integrate the lessons learned from the policy responses to recent economic 
shocks,  including  the  interaction  between  reforms  and  investment  under  the  Recovery  and 
Resilience  Facility.  The  proposed  package  including  this  proposal  aims  to  address  these 
shortcomings and integrate those lessons.  

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OJ L 209, 2.8.1997, p. 6. 
OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 41. 
Regulation (EU) No 1175/2011 of the European Parliament and of the Council of 16 November 2011 
amending Council Regulation (EC) No 1466/97 on the  strengthening of the surveillance of budgetary 
positions and the surveillance and coordination of economic policies (OJ L 306, 23.11.2011, p. 12).  
Council Regulation (EU) No 1177/2011 of 8 November 2011 amending Regulation (EC) No 1467/97 
on  speeding  up  and  clarifying  the  implementation  of  the  excessive  deficit  procedure  (OJ  L  306, 
23.11.2011, p. 33).  
Communication COM(2020) 55 final of 5 February 2020 from the Commission ‘Economic governance 
review,  Report  on  the  application  of  Regulations  (EU)  No  1173/2011,  1174/2011,  1175/2011, 
1176/2011,  1177/2011,  472/2013  and  473/2013  and  on  the  suitability  of  Council  Directive 
2011/85/EU’.  

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In its Communication of 9 November 2022 the Commission put forward its orientations for a 
reform of the EU economic governance framework7  aimed at ensuring debt sustainability and 
promoting sustainable and inclusive growth in all Member States. The orientations envisaged 
a stronger national ownership, a simplified framework and a move towards a greater medium-
term focus, combined with stronger and more coherent enforcement. These orientations also 
reflected observations  that  emerged  from  the public consultation  launched in  October 2021, 
which invited other EU institutions and all key stakeholders to engage on the topic8.    

Based  on  the  findings  of  the  economic  governance  review  and  of  the  public  consultation 
launched  in  October  2021,  and  on  the  basis  of  the  orientations  put  forward  in  the 
Communication of 9 November 2022,  the package including this legislative proposal aims at 
making the EU governance framework simpler, more transparent  and effective, with  greater 
national  ownership  and  better  enforcement,  while  allowing  for  reform  and  investment  and 
reducing high public debt ratios in a realistic, gradual and sustained manner. In this way,  in 
the context of the European Semester, the reformed framework should help build the green, 
digital and resilient economy of the future, while ensuring the sustainability of public finances 
in all Member States. Stronger ex-post enforcement would be the necessary counterpart of a 
risk-based  surveillance  framework  that  provides  more  leeway  to  Member  States  to  set  their 
adjustment paths.  

The reform proposals are thus shaped by the higher and more diverse public debt levels, the 
need to sustain high levels of investment for a fair twin transition (green and digital), the need 
to ensure energy security, open strategic autonomy, as well as social and economic resilience, 
and the need for a strategic compass for security and defence. 

In particular, as the current debt reduction benchmark provided in Article 2(1) of Regulation 
No  1467/97  for  Member  States  with  a  debt  ratio  exceeding  the  reference  value  of  60  %  of 
gross domestic product (GDP) (the so-called “1/20th rule”) would likely imply, in the current 
circumstances of high deficit and debt ratios post-COVID, a too demanding frontloaded fiscal 
effort  that  would  have  a  very  negative  impact  on  growth  and  thereby  on  debt  sustainability 
itself,  it  is  proposed  to  move  to  a  more  risk-based  surveillance  framework  that  puts  debt 
sustainability  at  its  core  and  differentiates  more  between  Member  States  by  taking  into 
account  their  public  debt  challenges,  while  adhering  to  a  transparent  and  common  EU 
framework consistent with the 3% of GDP and 60% of GDP reference values of the Protocol 
No 12 on the excessive deficit procedure annexed to the Treaties. 

The rules for the opening and closing of an excessive deficit procedure (EDP) for breaches of 
the  3%  of  GDP  deficit  reference  value  (the  so-called  ‘deficit-based  EDP’)  would  remain 
unchanged,  with  some  adjustments  to  ensure  consistency  with  the  EDP  for  breaches  of  the 
debt  criterion,  to  recognise the  role of independent  fiscal  institutions and  to  clarify cases of 
severe economic downturn in the Union or the euro area as a whole. It is a well-established 
element of EU fiscal surveillance that has been effective in influencing fiscal behaviour and is 
well understood by policy makers and the general public, thanks to its simplicity. 

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Communication COM(2022)583 final of 9 November 2022 from the Commission ‘on orientations for a 
reform of the EU economic governance framework’.  
Commission  Staff  Working  Document  SWD(2022)  104  final  of  28  March  2022  ‘Online  public 
consultation on the review of the EU economic governance framework - Summary of responses - Final 
Report’.  

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The  EDP  for  breaches  of  the  debt  criterion  (the  so-called  ‘debt-based  EDP’)  would  be 
strengthened  for  both  activation  and  abrogation.  It  would  focus  on  departures  by  Member 
States with debt above 60% of GDP from the fiscal path that the Member State has committed 
itself to  and  has been endorsed by the Council under  the proposed Regulation  replacing the 
preventive arm of the Stability and Growth Pact (SGP). 

A  substantial  public  debt  challenge  established  according  to  the  most  recent  Debt 
Sustainability Monitor should be considered a key factor leading to the opening of an EDP as 
a  rule.  The  path  under  the  EDP  would  in  principle  be  the  one  originally  endorsed  by  the 
Council.  In case this  original path  is  no longer  feasible, due to  objective circumstances, the 
Commission could propose to the Council an amended path under the EDP. 

• 

Consistency with existing policy provisions in the policy area 

The  proposal  is  part  of  a  broader  package  of  proposals  following  the  Commission’s 
orientations  of  9  November  2022  for  a  reform  of  the  EU  economic  governance  framework. 
This  package  also  includes  a  proposal  for  a  Regulation  replacing  the  preventive  arm  of  the 
SGP  and  a  proposal  amending  Council  Directive  2011/85/EU.  The  package  aims  at 
establishing  a  reformed  framework  that  relies  on  medium-term  orientation  and  national 
ownership aiming at a credible and substantial reduction of high debt levels and at promoting 
sustainable  and  inclusive  growth.  The  reformed  economic  governance  framework,  thus, 
retains the fundamental objectives of budgetary discipline and growth promotion of the SGP 
and its founding provisions in the Treaty on the Functioning of the European Union (TFEU). 

At  the  same  time,  by  aiming  at  sound  and  sustainable  public  finances  as  well  as  growth 
promotion,  the  reformed  framework  also  meets  the  main  objectives  of  the  Fiscal  Compact 
which  forms  Title  III  of  the  Treaty  on  Stability,  Coordination  and  Governance  in  the 
Economic  and  Monetary  Union  (TSCG)9.  In  addition,  other  elements  of  the  proposed 
legislation  retain  the  substance  of  the  Fiscal  Compact.  With  a  medium-term  orientation 
anchored  on  country-specific  debt  challenges,  the  proposal  for  a  Regulation  replacing  the 
preventive arm of the SGP reflects in part the Fiscal Compact’s requirement of convergence 
to  medium-term  positions  to  be  proposed  taking  into  account  country-specific  sustainability 
risks (Article 3(1), point b of the TSCG). While emphasising the structural balance, the Fiscal 
Compact  also  requires  an  analysis  of  expenditure  net  of  discretionary  revenue  measures  for 
the overall assessment of compliance (Article 3(1), point b, of the TSCG), and this analysis is 
upheld in the proposal for a Regulation replacing the preventive arm of the SGP.  The Fiscal 
Compact allows for temporary deviations from the medium-term objective or adjustment path 
towards  it  only  in  exceptional  circumstances  (Article  3(1),  point  c,  of  the  TSCG),  as 
envisaged  in  the  proposal  for  a  Regulation  replacing  the  preventive  arm  of  the  SGP.  The 

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With the aim of strengthening budgetary discipline throughout the economic cycle, on 2 March 2012, 
25 Member States ratified the inter-governmental TSCG. In its first paragraph, Article 2 of the TSCG 
recalls  that  it  ‘shall  be  applied  and  interpreted  by  the  Contracting  Parties  in  conformity  with  the 
Treaties on which the EU is founded, in particular Article 4(3) TEU, and with European law, including 
procedural  law  whenever  the  adoption  of  secondary  legislation  is  required’.  In  its  second  paragraph, 
Article 2 of the TSCG recalls that it ‘shall apply insofar as it is compatible with the Treaties on which 
the EU is founded and with EU law. It shall not encroach upon the competence of the Union to act in 
the area of the economic union’. Title III of the TSCG, the "Fiscal Compact", is binding on the Member 
States whose currency is the euro and, on a voluntary basis, on other Member States (TSCG, art. 1(2) 
and  14(5)).  Article  16  of  the  TSCG  provides  that  ‘within  five  years  at  most,  of  the date  of  entry  into 
force  of  this  Treaty,  on  the  basis  of  an  assessment  of  the  experience  with  its  implementation,  the 
necessary  steps  shall  be  taken,  in  accordance  with  the  TEU  and  the  TFEU,  with  the  aim  of 
incorporating the substance of this Treaty into the legal framework of the EU’ 

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Fiscal  Compact  stipulates that, in  case of significant  observed deviations  from  the medium-
term objective or the adjustment path towards it, measures have to be implemented to correct 
the deviations over a defined period of time (Article 3(1), point e, of the TSCG). In the same 
vein, the reformed framework requires corrections of deviations from the net expenditure path 
set by the Council. Moreover, when deviations result in a deficit in excess of 3% of GDP, the 
Member State could be placed under the excessive deficit procedure. For a Member State with 
debt  above  60%  of  GDP,  the  debt-based  EDP  would  be  strengthened:    it  would  focus  on 
departures  from  the  net  expenditure  path,  replacing  the  “1/20th  rule”,  which  imposed  a  too 
demanding  fiscal  effort  for  some  Member  States.  The  Fiscal  Compact  assigns  a  monitoring 
role  of  the  compliances  with  its  rules  to  national  independent  fiscal  institutions,  and  the 
provisions  on  the  role  and  independence  of  those  monitoring  institutions,  which  had  to  be 
detailed in common principles proposed by the Commission10 in accordance with Article 3(2) 
of the TSCG, are now fully integrated in the proposal amending Directive 2011/85. The Fiscal 
Compact  provides  that  the  Commission  and  the  Council  play  a  role  in  the  enforcement 
process  (Article  5  of  the  TSCG),  as  stated  in  the  present  proposal  for  a  Council  Regulation 
amending Council Regulation (EC) No 1467/97.  

Commonalities  between  the  Fiscal  Compact  and  the  reformed  economic  governance 
framework also stem from the implementation of the Fiscal Compact into the national legal 
orders.  Most  Contracting  Parties  have  transposed  the  TSCG  provisions  into  national  laws 
inserting  a  direct  link  with  corresponding  EU  laws11.  This  applies  to  the  medium-term 
objective  and  convergence  path  as  well  as  the  assessment  of  a  significant  deviation  or 
provisions requiring to follow the recommendations adopted by the Council (all drawn from 
Regulation No 1466/97). 

Considering  these  commonalities,  the  proposed  reformed  economic  governance  framework 
can be considered as incorporating the substance of the fiscal provisions of the TSCG into the 
legal framework of the EU, as per Article 16 of the TSCG.  

• 

Consistency with other Union policies 

The  proposal  is  part  of  a  package  that  aims  at  moving  to  a  risk-based  common  EU 
surveillance  framework  that  differentiates  between  Member  States  by  taking  into  account 
their public debt challenges. It revises the EU fiscal framework by integrating fiscal,  reform 
and investment objectives into a single, holistic medium-term fiscal-structural plan which will 
be the cornerstone of the new framework. The plan will include all reforms  and investment 
commitments  taken by  Member States  to  address  the challenges identified in  the context  of 
the  European  Semester,  including  the  country-specific  recommendations.  A  set  of  these 
reform  and  investment  commitments  would  allow  for  an  extension  of  the  fiscal  adjustment 
horizon provided that they meet certain criteria such as being growth enhancing (examples of 
such  reforms  include  addressing  the  challenges  of  population  ageing,  improving  the 
functioning  of  the  labour  market  and  increasing  labour  supply,  encouraging  innovation  and 
strengthening  skills,  improving  the  business  environment12,  removing  barriers  to  the  Single 

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See Communication COM(2012) 342 final of 20 June 2012 from the Commission ‘Common principles 
on national fiscal correction mechanisms’.  
Report C(2017) 1201 final of 22 February 2017 from the Commission presented under Article 8 of the 
TSCG. 
Good governance and respect for the rule of law, in particular independent, quality and efficient justice 
systems, functioning and effective tax systems, effective insolvency and robust anti-corruption and anti-
fraud frameworks are key determinants in this context. 

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Market  and  addressing  strategic  dependencies),  ensuring  fiscal  sustainability  and  being 
consistent with common priorities of the Union. 

2. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

The legal basis for this instrument is the second subparagraph of Article 126(14) TFEU, as for 
the amended regulation.  

• 

Subsidiarity 

The  corrective  arm  of  the  SGP  is  meant  to  avoid  gross  errors  in  budgetary  policies,  which 
might  put  at  risk  the  sustainability  of  public  finances  and  potentially  endanger  EMU.  This 
translates  into  the  Treaty  obligation  for  Member  States  to  avoid  excessive  government 
deficits,  which  are  defined  against  a  numerical  threshold  for  deficit  (3%  of  GDP)  and  debt 
(60%  of  GDP  or  sufficiently  declining  toward  it).  The  excessive  deficit  procedure  that 
implements  the ban on excessive deficits provides for a sequence of steps, which, for euro-
area  countries,  include  the  eventual  imposition  of  financial  sanctions.  The  excessive  deficit 
procedure has been regularly applied in line with the relevant provisions, thereby contributing 
to anchoring expectations of its orderly resolution. 

The proposal is in conformity with the subsidiarity principle set out in Article 5 of the Treaty 
on the European Union. Its objective, namely uniform compliance with budgetary discipline 
as required by the TFEU, cannot  be sufficiently achieved  by the Member States and can be 
better achieved at Union level. 

• 

Proportionality 

The  proposal  respects  the  proportionality  principle  set  out  in  Article  5  of  the  Treaty  on  the 
European Union. It does not go beyond what is necessary to achieve the objectives sought by 
the instrument. 

• 

Choice of the instrument 

The proposals aims to amend a Council Regulation, and therefore takes the form of a proposal 
for a Council Regulation. 

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Ex-post evaluations/fitness checks of existing legislation 

Backward looking assessments of the EU economic governance framework were published in 
February 202013 and October 202114. 

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Communication COM(2020) 55 final of 5 February 2020 from the Commission ‘Economic governance 
review,  Report  on  the  application  of  Regulations  (EU)  No  1173/2011,  1174/2011,  1175/2011, 
1176/2011,  1177/2011,  472/2013  and  473/2013  and  on  the  suitability  of  Council  Directive 
2011/85/EU’.  
Communication  COM(2021)  662  final  of  19  October  2021  from  the  Commission  ‘The  EU  economy 
after COVID-19: implications for economic governance’.  

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Stakeholder consultations 

Extensive consultations with stakeholders have taken place. They consisted in:  

 

 

Online consultation to gather the views of stakeholders, civil society and citizens. A 
summary report of the outcome of this consultation was published in March 202215. 

In-depth  thematic  discussions  with  Member  States  took  place  in  the  Council 
(ECOFIN),  the  Eurogroup,  the  Economic  and  Financial  Committee  and  the 
Economic Policy Committee. 

The results have been taken into account in the Communication  of 9 November 2022 of the 
Commission on orientations for a reform of the economic governance framework16, and in the 
present proposal. 

After the adoption of the Communication of 9 November 2022, further discussions took place 
with Member States in the Council and with the European Parliament, which have been taken 
into account in the present proposal: 

 

 

The European Parliament adopted its annual reports on the European Semester on 15 
March  2023  which  also  focused  on  the  reform  of  the  EU  economic  governance 
framework and the future of the European Semester. 

The Council (ECOFIN) adopted Conclusions on the orientations for a reform of the 
EU  economic  governance  framework  on  14  March  2023,  which  were  endorsed  by 
the European Council of 23-24 March 2023. 

• 

Impact assessment 

The proposal has been granted a derogation from an impact assessment on the grounds of (i) 
lack of options as the EU fiscal framework sets the boundaries of the revision and (ii) focus 
on  targeted  changes  that  (iii)  do  not  result  in  an  increase  in  reporting  requirements  for 
Member States and (iv) are informed by evidence-gathering activities undertaken in the recent 
past  (staff  working  document  and  Commission  Communications  drafted  between  2020  and 
2022). 

4. 

BUDGETARY IMPLICATIONS 

If fines are imposed on Member States by the Council, the corresponding revenue will go to 
the EU budget as other revenue. An amendment of Article 21(2) of the Financial Regulation 
will also be necessary to that effect17. 

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Commission  Staff  Working  Document  SWD(2022)  104  final  of  28  March  2022  ‘Online  public 
consultation on the review of the EU economic governance framework - Summary of responses - Final 
Report’.  
Communication COM(2022)583 final of 9 November 2022 from the Commission ‘on orientations for a 
reform of the EU economic governance framework’. 
Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council of 18 July 2018 on 
the  financial  rules  applicable  to  the  general  budget  of  the  Union,  amending  Regulations  (EU)  No 
1296/2013, (EU) No 1301/2013, (EU) No 1303/2013, (EU) No 1304/2013, (EU) No 1309/2013, (EU) 
No  1316/2013,  (EU)  No  223/2014,  (EU)  No  283/2014,  and  Decision  No  541/2014/EU  and  repealing 
Regulation (EU, Euratom) No 966/2012 (OJ L 193, 30.7.2018, p. 1).  

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5. 

• 

OTHER ELEMENTS 

Implementation plans and monitoring, evaluation and reporting arrangements 

The  amended  Regulation  contains  a  review  clause  whereby  every  5  years  the  Commission 
will  publish  a  report  on  the  application  of  the  Regulation.  The  report  will  review:  (i)  the 
effectiveness of the Regulation; (ii) the progress in ensuring closer coordination of economic 
policies  and  sustained  convergence  of  economic  performances  of  the  Member  States  in 
accordance with the TFEU. 

6.  

DETAILED  EXPLANATION  OF  THE  SPECIFIC  PROVISIONS  OF  THE 
PROPOSAL 

Article 1 of the proposal contains the proposed modifications to Regulation No 1467/97. 

the  SGP.  It  changes 

the  preventive  arm  of 

Paragraph  (1)  adds  new  definitions  to  Article  1  of  Regulation  No  1467/97  in  line  with  the 
proposed  Regulation  replacing  the  preventive  arm  of  the  SGP.  It  changes  the  wording  of 
Article  2  on  unusual  events  into  exceptional  circumstances  and  adds  cross-references  to  the 
proposed  Regulation  replacing 
the 
operationalisation of the Treaty debt criterion, abandoning the “1/20th rule” and focusing on 
the  respect  of  the  net  expenditure  path  set  by  the  Council  under  the  proposed  Regulation 
replacing the preventive arm of the SGP. It removes the reference to a quantitative description 
of  a  severe  economic  downturn  and  refers  instead  to  the  proposed  Regulation  replacing  the 
preventive arm of the SGP. It streamlines the list of relevant factors to decide on the existence 
of an excessive deficit. The degree of a Member State’s debt challenges will be a key relevant 
factor when preparing a report under Article 126(3) TFEU. In particular, a substantial public 
debt challenge established according to the most recent Debt Sustainability Monitor shall be 
considered a key factor leading to the opening of an excessive deficit procedure as a rule. In 
case  of  a  severe  economic  downturn,  the  Commission  and  the Council,  in  their  assessment, 
may decide not to conclude on the existence of an excessive deficit, in line with the approach 
followed  during  the  activation  of  the  general  escape  clause  during  the  COVID-19  crisis. 
Lastly,  the  provisions  referring  to  the  introduction  of  multi-pillar  pension  systems  are 
removed. 

Paragraph  (2)  makes  the  opinion  of  the  Economic  and  Financial  Committee  in  accordance 
with Article 126(4) TFEU, and decisions and recommendations by the Council in accordance 
with  Article  126(6)  and  Article  126(7)  TFEU  public.  It  sets  out  the  requirements  of  the 
corrective net  expenditure path set in a Council recommendation in accordance with Article 
126(7) TFEU, to have the deficit remaining or brought and maintained below the 3% of GDP 
reference value and to put debt on a plausibly downward path or keep it at a prudent level. For 
the  years where the  general  government  deficit is expected to  exceed the reference value, a 
minimum annual adjustment of at least 0,5% of GDP as a benchmark is maintained. It adds an 
obligation for Member States to include in their report on effective action the opinion of their 
independent fiscal institution. Lastly, it stipulates that exceptional circumstances and a severe 
economic downturn in the euro area or the Union as a whole allow the Council to extend the 
deadline for correction. 

Paragraph  (3)  removes  the  provisions  regarding  possible  publication  of  the  Council 
recommendations  under  Article  126(7)  TFEU,  as,  in  accordance  with  paragraph  (2),  this 
publication becomes automatic. It adds that decisions by the government should not only be 
publicly announced but also sufficiently detailed in order to be included in the assessment of 
effective action. 

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Paragraph (4) sets out the requirements of the corrective net expenditure path set in a Council 
Decision  to  give  Notice  in  accordance  with  Article  126(9)  TFEU,  to  have  the  deficit 
remaining or brought and maintained below the 3% of GDP reference value and to put debt 
on a plausibly downward path or keep it at a prudent level. For the  years where the general 
government deficit is expected to exceed the reference value, a minimum annual adjustment 
of  at  least  0,5%  of  GDP  as  a  benchmark  is  maintained.  It  also  stipulates  that  exceptional 
circumstances and a severe economic downturn in the euro area or the Union as a whole allow 
the Council to extend the deadline for correction. 

Paragraph (5) adds that decisions by the government should not only be publicly announced 
but  also  sufficiently  detailed  in  order  to  be  included  in  the  assessment  of  effective  action 
following a notice given by the Council under Article 126(9) TFEU. 

Paragraph (6) adds the conditions for the Council to abrogate the excessive deficit procedure 
under Article 126(12) TFEU. Under the current fiscal framework, those are only stipulated in 
a Code of Conduct.  

Paragraph (7) and (8) complete the existing references to the relevant articles of the TFEU. 

Paragraph  (9)  provides  that  the  missions  undertaken  by  the  Commission  in  Member  States 
allow  an  exchange  also  with  relevant  stakeholders  other  than  the  national  authorities, 
including  independent  fiscal  institutions.  It  also  requires  the  Commission  to  carry  out 
dedicated surveillance missions to Member States which were given a notice by the Council 
under  Article  126(9)  TFEU,  and  provides  that,  in  that  context  and  upon  invitation  by  the 
parliament of the Member State concerned, the Commission may present its assessment of the 
economic and fiscal situation in the Member State. 

Paragraph  (10)  removes  the  minimum  amount  for  fines  and  proposes  that  they  accumulate 
every six months until effective action is taken, up to a maximum of 0.5% of GDP.  

Paragraph (11) completes the existing references to the relevant articles of the TFEU. 

Paragraph  (12)  removes  the  article  that  assigns  the  revenues  of  fines  to  the  European 
Financial Stability Facility. If fines are imposed, their revenues will go to the EU budget, as 
other  revenue.  An  amendment  of  Article  21(2)  of  the  Financial  Regulation  will  also  be 
necessary  to  that  effect.  Paragraph  (12)  also  removes  provisions  related  to  the  United 
Kingdom following the withdrawal of the United Kingdom from the European Union. 

Paragraph (13) amends the review clause. 

Paragraph (14) adds transitional provisions. 

Paragraph (15) removes the annex with provisions related to the United Kingdom. 

Article 2 stipulates the entry into force and applicability of the amending Regulation. 

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2023/0137 (CNS) 

Proposal for a 

COUNCIL REGULATION 

amending Regulation (EC) No 1467/97 on speeding up and clarifying the 
implementation of the excessive deficit procedure 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 126(14), second subparagraph, thereof,  

Having regard to the proposal from the European Commission, 

After transmission of the draft legislative act to the national parliaments, 
Having regard to the opinion of the European Parliament1,  

Having regard to the opinion of the European Central Bank,  

Acting in accordance with a special legislative procedure, 

Whereas: 

(1) 

(2) 

The coordination of the economic policies of the Member States within the Union, as 
provided for by the Treaty on the Functioning of the European Union (TFEU), entails 
compliance  with  the  guiding  principles  of  stable  prices,  sound  public  finances  and 
monetary conditions and a sustainable balance of payments. 

The  economic  governance  framework  of  the  Union,  which  comprises  an  elaborate 
system of policy coordination and surveillance of Member States’ economic policies, 
has  guided  Member  States  in  achieving  their  economic  and  fiscal  policy  objectives. 
Since  the  Treaty  of  Maastricht  of  1992,  the  framework  has  helped  achieve 
macroeconomic  convergence,  safeguard  sound  public 
finances  and  address 
macroeconomic imbalances. Together with a common monetary policy and a common 
currency in the euro area, the framework has created conditions for economic stability, 
sustainable and inclusive economic growth and higher employment for citizens of the 
Union. 

(3) 

The Stability and Growth Pact (SGP), which initially consisted of Council Regulation 
(EC)  No  1466/972,  Council  Regulation  (EC)  No  1467/97  of  7  July  19973  and  the 
Resolution  of  the  European  Council  of  17  June  1997  on  the  SGP4,  is  based  on  the 
objective of sound and sustainable  government  finances  as  a means  of strengthening 

1 
2 

3 

4 

OJ C , , p. . 
Council  Regulation  (EC)  No  1466/97  of  7  July  1997  on  the  strengthening  of  the  surveillance  of 
budgetary positions and the surveillance and coordination of economic policies (OJ L 209, 2.8.1997, p. 
1). 
Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation 
of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6). 
Resolution of the European Council on the Stability and Growth Pact Amsterdam, 17 June 1997 (OJ C 
236, 2.8.1997, p. 1). 

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the  conditions  for  price  stability  and  for  strong  sustainable  and  inclusive  growth 
underpinned by financial stability, thereby supporting the achievement of the Union’s 
objectives for sustainable growth and employment. 

In stage three of the Economic and Monetary Union (EMU), the Member States are, 
according to Article 126(1) TFEU, under the obligation to avoid excessive government 
deficits. 

The  economic  governance  framework  of  the  Union  should  be  adapted  to  better  take 
into  account  the  growing  heterogeneity  of  fiscal  positions,  sustainability  risks  and 
other vulnerabilities across Member States. The strong policy response to the COVID-
19  pandemic  proved  effective  in  mitigating  the  economic  and  social  damage  of  the 
crisis,  but  resulted  in  a  significant  increase  in  public-  and  private-sector  debt  ratios, 
underscoring  the  importance  of  reducing  debt  ratios  to  prudent  levels  in  a  gradual, 
sustained  and  growth-friendly  manner  and  addressing  macroeconomic  imbalances, 
while paying due attention to employment and social objectives. At the same time, the 
economic governance framework of the Union should be adapted to help address the 
medium- and long-term challenges facing the Union, including achieving a fair digital 
and  green  transition,  including  the  Climate  Law5,  ensuring  energy  security,  open 
strategic  autonomy,  addressing  demographic  change,  strengthening  social  and 
economic resilience, and implementing the strategic compass for security and defence, 
all of which requires  reforms and  sustained high levels  of investment  in the  years to 
come.   

The economic governance framework of the Union should put debt sustainability and 
sustainable  growth  at  its  core  and  therefore  differentiate  between  Member  States  by 
taking  into  account  their  public  debt  challenges  and  allowing  country-specific  fiscal 
trajectories.  

At the same time, to ensure a transparent and common Union framework based on the 
reference  values  referred  to  in  Article  126(2)  TFEU  and  Protocol  No  12  on  the 
excessive  deficit  procedure  annexed  to  the  TFEU  and  the  Treaty  on  the  European 
Union (TUE), stronger enforcement  underpinning multilateral  surveillance should be 
the  necessary  counterpart  of  a  risk-based  surveillance  framework  that  allows  for 
country-specific fiscal trajectories.  

In  order  to  simplify  the  Union  fiscal  framework  and  increase  transparency,  a  single 
operational indicator anchored in debt sustainability should serve as a basis for setting 
the fiscal path and carrying out annual fiscal surveillance for each Member State. That 
single indicator should be based on nationally financed net primary expenditure, that is 
to  say  expenditure  net  of  discretionary  revenue  measures  and  excluding  interest 
expenditure as well as cyclical unemployment expenditure and expenditure on Union 
programmes  fully  matched  by  revenue  from  Union  funds.  This  indicator  allows  for 
macro-economic  stabilisation  as  it  is  not  affected  by  the  operation  of  automatic 
stabilisers, including revenue and expenditure fluctuations outside the direct control of 
the government. 

The excessive deficit procedure (EDP) for breaches of the deficit reference value of 3 
%  of  gross  domestic  product  (GDP)  (‘deficit-based  EDP’),  referred  to  in  Article 

The European Climate Law sets a Union-wide climate neutrality objective by 2050 and requires Union 
institutions and Member States to progress in enhancing adaptive capacity, requiring significant public 
investment to reduce the negative socio-economic impacts of climate change on the EU and its Member 
States, including negative impacts on growth and fiscal sustainability. 

(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

5 

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126(2) TFEU and Protocol No 12 is a well-established element of the Union’s fiscal 
surveillance  framework  that  has  been  effective  in  influencing  fiscal  policy  in  the 
Member States.  

(10)  To strengthen the EDP for breaches of the debt criterion of 60 % of GDP (‘debt-based 
EDP’), referred to in Article 126(2) TFEU and Protocol No 12 the focus should be on 
departures from the fiscal path set by the Council  under Regulation (EU) […] of the 
European Parliament and of the Council6.  

(11)  On  the  basis  of  Article  126(2)  TFEU,  the  deficit  criterion  is  also  fulfilled  where  the 
excess over the reference value of 3 % of GDP is only exceptional and temporary and 
the  ratio  remains  close  to  the  reference  value.  Therefore,  a  temporary  breach  that 
remains close to the reference value should not lead to the opening of a deficit-based 
EDP if it results from exceptional circumstances outside the control of the government 
with  a  major  impact  on  the  public  finances  of  the  Member  State  concerned,  which 
includes a severe economic downturn in the Member State concerned. 

(12)  Moreover, in case of a severe economic downturn in the euro area or the Union as a 
whole,  and  following  the  application  of  Article  24  of  Regulation  (EU)  [on  the 
preventive arm], the Commission and the Council may decide not to conclude on the 
existence of an excessive deficit. 

(13) 

In accordance with Articles 24 and 25 of Regulation (EU) [on the preventive arm], the 
Council, following a recommendation from the Commission, can allow Member States 
to  deviate from  the net  expenditure path  set  by  the Council under that  Regulation  in 
the event of a severe economic downturn in the euro area or the Union as a whole, or 
in the event of exceptional circumstances outside the control of the government with a 
major impact on the public finances of the Member State concerned, provided that it 
does not endanger fiscal sustainability in the medium term. As a consequence, such a 
deviation should not lead to the opening of a debt-based EDP. 

(14)  When assessing the existence of an excessive deficit in accordance with Article 126(3) 
TFEU, the Commission should take into account, as a key relevant factor, the degree 
of debt challenge in the Member State concerned. A substantial public debt challenge 
established  according  to  the  most  recent  Debt  Sustainability  Monitor  should  be 
considered  a  key  factor  leading  to  the  opening  of  an  EDP  as  a  rule.  Since,  in 
accordance with Article 126(3) TFEU, the Commission is to take into account all other 
relevant  factors,  in  so  far  as  they  significantly  affect  the  assessment  of  compliance 
with the deficit and debt criteria by the Member State concerned, that should include 
in  particular  the  developments  in  the  medium-term  economic  position  and  the 
developments  in  the  medium-term  budgetary  position,  and  the  implementation  of 
structural  reforms  and  investment.  In  order  to  increase  national  ownership,  the 
independent  fiscal  institutions  referred  to  in  Article  8  of  Council    Directive  [on  the 
national budgetary frameworks]7, should provide an opinion on the relevant factors.   

(15)  To keep track of actual and planned annual deviations from the net expenditure path as 
set  out  in  Annex  IV  to  Regulation  (EU)  [on  the  preventive  arm],  the  Commission 
should set up a control account for each Member State summing those deviations over 

6 

7 

Regulation  (EU)  […]  of  the  European  Parliament  and  of  the  Council  of  […]  [on  the  effective 
coordination of economic policies and multilateral budgetary surveillance] (OJ L …, …, p….). 
Council Directive […] of […] [amending Council Directive 2011/85/EU on requirements for budgetary 
frameworks of the Member States] (OJ L …, …, p….). 

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time.  The  information  in  the  control  account  should  be  the  basis  of  enforcement 
actions, in particular of a report pursuant to Article 126(3) TFEU following a deviation 
from  the  net  expenditure  path.  At  the  same  time,  the  degree  of  ambition  of  the  net 
expenditure  path  in  the  national  medium-term  fiscal-structural  plan  referred  to  in 
Regulation (EU) [on the preventive arm] should be considered when deciding on the 
opening of a debt-based EDP. In particular, if the Member State’s net expenditure path 
set  by  the  Council  is  more  ambitious  than  the  medium-term  technical  trajectory  put 
forward  by  the  Commission  in  accordance  with  Regulation  (EU)  [on  the  preventive 
arm]  and  the  deviation  from  the  path  is  not  significant  when  measured  against  this 
trajectory, the opening of an excessive deficit procedure should be avoided. 

(16)  The corrective net  expenditure path  under the EDP  should bring or keep the  general 
government  deficit  durably  below  the  reference  value  of  3  %  of  GDP  referred  to  in 
Article 126(2) TFEU and Protocol No 12 by the deadline established by the Council. 
The  corrective  net  expenditure  path  under  the  EDP  should  also  ensure  sufficient 
progress  during  the  period  covered  by  the  recommendation  regarding  putting  the 
projected  debt  ratio  on  a  plausibly  downward  path  or  remaining  at  a  prudent  level. 
When setting the  corrective net  expenditure path under the EDP,  the Council should 
also ensure that there is no back-loading of the required fiscal adjustment effort. The 
corrective net expenditure path under the EDP would in principle be the one originally 
set  by  the  Council,  while  taking  into  account  the  need  to  correct  the  deviation  from 
that  path.  In  case  the  original  path  is  no  longer  feasible,  due  to  objective 
circumstances, the Council should be able to set a different path under the EDP. 

(17)  For  Member  States  under  an  EDP,  the  Council,  on  a  recommendation  from  the 
Commission,  should  continue  to  be  able  to  extend  the  deadline  for  the  correction  of 
the excessive deficit where it establishes the existence of a severe economic downturn 
in the euro area or in the Union as a whole in accordance with Article 24 of Regulation 
(EU) [on the preventive arm], or in the case of exceptional circumstances outside the 
control of the government with a major impact on the public finances of an individual 
Member  State  and  provided  that  it  does  not  endanger  fiscal  sustainability  in  the 
medium term. Such extension should require that the overall size of the shock exceeds 
a  normal  range,  for  example  costs  of  natural  disasters  should  be  anticipated  within 
bandwidths.  

(18)  Specific  provisions  of  Regulation  (EC)  No  1467/97  related  to  the  contributions  to 
second pillar pension systems should be deleted since the net expenditure path set by 
the  Council  should  already  take  into  account  the  revenue  loss  related  to  such 
contributions. 

(19) 

Independent fiscal institutions have proven their capacity to foster fiscal discipline and 
strengthen  the  credibility  of  Member  States’  public  finances.  In  order  to  enhance 
national ownership, the role of independent fiscal institutions, traditionally mandated 
to  monitor  compliance  with  the  national  framework,  should  be  expanded  to  the 
economic governance framework of the Union.  

(20)  Clear conditions  should  be laid down for abrogation of excessive deficit  procedures. 
Abrogation should require the deficit to remain credibly below the reference value of 3 
%  of  GDP  referred  to  in  Article  126(2)  TFEU  and  Protocol  No  12  and,  for  a  debt-
based EDP, that the Member State demonstrates compliance with the net expenditure 
path under the EDP. 

(21)  The  fines  provided  for  in  Article  126(11)  TFEU  should  not  provide  for  a  minimum 
amount  but  they  should  accumulate  until  effective  action  is  taken,  in  order  to 

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constitute  a  real  incentive  for  compliance  with  the  notices  given  to  Member  States 
under an EDP in accordance with Article 126(9) TFEU. 

(22)  Provisions related to the United Kingdom should be deleted. 

(23)  This Regulation is part of a package together with Regulation (EU) [on the preventive 
arm]  and  Directive  (EU)  […]  amending  2011/85/EU  on  requirements  for  budgetary 
frameworks  of  the  Member  States.  Together,  they  establish  a  reformed  Union 
economic  governance  framework  that  incorporates  into  Union  law  the  substance  of 
Title  III  ‘Fiscal  Compact’  of  the  Treaty  on  Stability,  Coordination  and  Governance 
(TSCG) in the Economic and Monetary Union8, in accordance with Article 16 thereof. 
By building on the experience with the implementation of the TSCG by the Member 
States, the package retains the Fiscal Compact’s medium-term orientation as a tool to 
achieve  budgetary  discipline  and  growth  promotion.  The  package  includes  a 
strengthened  country-specific  dimension  aimed  at  enhancing  national  ownership, 
including by means of a stronger role for independent fiscal institutions, which draws 
on  the  Fiscal  Compact’s  common  principles  proposed  by  the  Commission9  in 
accordance  with  Article  3(2)  of  the  TSCG.  The  analysis  of  expenditure  net  of 
discretionary revenue measures for the overall assessment of compliance required by 
the  Fiscal  Compact  is  set  out  in  Regulation  (EU)  [on  the  preventive  arm].  As  in  the 
Fiscal Compact, temporary deviations from the medium-term plan are allowed only in 
exceptional  circumstances  in  Regulation  (EU)  [on  the  preventive  arm].  Similarly,  in 
case  of  significant  deviations  from  the  medium-term  plan,  measures  should  be 
implemented  to  correct  the  deviations  over  a  defined  period  of  time.  The  package 
strengthens  fiscal  surveillance  and  enforcement  procedures  to  deliver  on  the 
commitment  of  promoting  sound  and  sustainable  public  finances  and  sustainable 
growth.  The  economic  governance  framework  reform,  thus,  retains  the  fundamental 
objectives of budgetary discipline and debt sustainability set out in the TSCG. 

(24)  Transitional provisions are needed for Member States that are under an EDP when the 
reformed framework enters into force. Recommendations under Article 126(7) TFEU 
and notices under Article 126(9) TFEU that have been adopted prior to the entry into 
force  of  this  amending  Regulation  need  to  be  revised  in  order  to  align  them  to  the 
provisions of amended Article 3(4) and Article 5(1). This would allow the Council to 
set  a  corrective net  expenditure path  consistent  with  the new provisions for Member 
States that have taken action, without stepping up the excessive deficit procedure. 

(25)  Regulation (EC) No 1467/97 should therefore be amended accordingly, 

HAS ADOPTED THIS REGULATION: 

Regulation (EC) No 1467/97 is amended as follows: 

Article 1 

(1) 

Articles 1 and 2 are replaced by the following: 

8 

9 

Treaty  on  Stability,  Coordination  and  Governance  in  the  Economic  and  Monetary  Union  of  2  March 
2012.  
Communication COM(2012) 342 final of 20 June 2012 from the Commission  ‘Common principles on 
national fiscal correction mechanisms’.  

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‘Article 1 

1.  This  Regulation  lays  down  the  provisions  for  speeding  up  and  clarifying  the 
implementation  of  the  excessive  deficit  procedure.  The  objective  of  the  excessive 
deficit  procedure  is  to  deter  excessive  government  deficits  and,  if  they  occur,  to 
further  prompt  their  correction,  where  compliance  with  the  budgetary  discipline  is 
examined on the basis of the government deficit and government debt criteria. 

2.  For the purposes of this Regulation, the following definitions apply:   

(a) 

(b) 

(c) 

(d) 

‘participating  Member  States’  means  those  Member  States  whose  currency  is 
the euro;  

‘net  expenditure’  means  government  expenditure  net  of  interest  expenditure, 
discretionary  revenue  measures  and  other  budgetary  variables  outside  the 
control of the government, as defined in Annex II, point (a) of Regulation (EU) 
of the European Parliament and of the Council [on the preventive arm]*; 

‘technical  trajectory’  means  the  net  expenditure  trajectory  put  forward  by  the 
Commission in accordance with Regulation (EU) [on the preventive arm]; 

‘net expenditure path’ means the multi-annual trajectory for net expenditure of 
a Member State as set by the Council in accordance with Regulation (EU) [on 
the preventive arm]; 

(e) 

‘control account’ means a record of a Member State’s cumulated deviations of 
the actual net expenditure from the net expenditure path.  

Article 2 

1.  The excess  of a  government  deficit over the  reference value shall be  considered 
exceptional, in accordance with Article 126(2), second indent, point (a), of the Treaty 
on  the  Functioning  of  the  European  Union  (TFEU),  where  the  Council  has 
established  the  existence  of  a  severe  economic  downturn  in  the  euro  area  or  the 
Union  as  a  whole  in  accordance  with  Article  24  of  Regulation  (EU)  [on  the 
preventive  arm]  or  of  exceptional  circumstances  outside  the  control  of  the 
government  with  a  major  impact  on  the  public  finances  of  the  Member  State 
concerned,  in  accordance  with  Article  25  of  Regulation  (EU)  [on  the  preventive 
arm]. 

In addition, the excess over the reference value shall be considered temporary where 
budgetary forecasts as provided by the Commission indicate that the deficit will fall 
below the reference value following the end of the severe economic downturn or the 
exceptional circumstances referred to in the first subparagraph. 

1a. When  it  exceeds  the  reference  value,  the  ratio  of  the  government  debt  to  gross 
domestic  product  (GDP)  shall  be  considered  sufficiently  diminishing  and 
approaching  the  reference  value  at  a  satisfactory  pace  in  accordance  with  Article 
126(2), point (b), TFEU if the Member State concerned respects its net expenditure 
path.    

2.  The  Commission  and  the  Council,  when  assessing  and  deciding  upon  the 
existence of an excessive deficit in accordance with Article 126(3) to (6) TFEU, may 
consider  an  excess  over  the  reference  value  resulting  from  a  severe  economic 
downturn  as  exceptional  in  the  sense  of  Article  126(2),  second  indent,  point  (a), 

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TFEU  where  the  Council  establishes  the  existence  of  exceptional  circumstances  in 
accordance with Article 25 of Regulation (EU) [on the preventive arm].  

3.  The Commission, when preparing a report under Article 126(3) TFEU, shall take 
into  account  as  a  key  relevant  factor  the  degree  of  debt  challenges  in  the  Member 
State concerned. In particular, where the Member State faces substantial public debt 
challenges  according  to  the  most  recent  Debt  Sustainability  Monitor,  it  shall  be 
considered a key factor leading to the opening of an excessive deficit procedure as a 
rule. 

The Commission shall also take into account all other relevant factors as indicated in 
Article  126(3)  TFEU,  in  so  far  as  they  significantly  affect  the  assessment  of 
compliance with the deficit and debt criteria by the Member State concerned. 

The report shall reflect, as appropriate: 

(a) 

(b) 

(c) 

(d) 

the developments in the medium-term economic position, in particular inflation 
developments  and  cyclical  developments  compared  to  the  assumptions 
underlying the net expenditure path; 

the  developments  in  the  medium-term  budgetary  positions,  including,  in 
particular,  the  size  of  the  actual  deviation  from  the  net  expenditure  path,  in 
annual  and  cumulative  terms  as  measured  by  the  control  account,  and  the 
extent to which the deviation is due to a severe economic downturn in the euro 
area  or  in  the  Union  as  a  whole  or  to  exceptional  circumstances  outside  the 
control  of  the  government  with  a  major  impact  on  the  public  finances  of  the 
Member State concerned in accordance with Articles 24 and 25 of Regulation 
(EU)  [on  the  preventive  arm].  Where  relevant,  the  deviation  compared  to  the 
technical trajectory shall also be taken into account when considering the size 
of the deviation; 

the evolution of the government debt position and its financing, and the related 
risk factors, in particular the maturity structure, the currency denomination of 
the debt and contingent liabilities; 

the implementation of reforms and investments including, in particular policies 
to  prevent  and  correct  excessive  macroeconomic  imbalances  and  policies  to 
implement  the  common  growth  and  employment  strategy  of  the  Union 
including  those  supported  by  NextGenerationEU,  and  the  overall  quality  of 
public  finances, 
the  effectiveness  of  national  budgetary 
frameworks. 

in  particular 

The Commission shall give due and express consideration to any other factors which, 
in  the  opinion  of  the  Member  State  concerned,  are  relevant  in  order  to 
comprehensively  assess  compliance  with  deficit  and  debt  criteria  and  which  the 
Member State has put forward to the Council and the Commission.  In that context, 
particular  consideration  shall  be  given  to  financial  contributions  to  fostering 
international  solidarity  and  achieving  the  policy  goals  of  the  Union.  The  opinion 
submitted  to  the  Commission  by  the  Member  State  concerned  shall  include  the 
opinion of its national independent fiscal institution on relevant factors.  

4.  The Council and the Commission shall make a balanced overall assessment of all 
the  relevant  factors,  specifically,  the  extent  to  which  they  affect  the  assessment  of 
compliance  with  the  deficit  and/or  the  debt  criteria  as  aggravating  or  mitigating 
factors.  

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When  assessing  compliance  on  the  basis  of  the  deficit  criterion,  if  the  ratio  of  the 
government  debt  to  GDP  exceeds  the  reference  value,  those  factors  shall  be  taken 
into  account  in  the  steps  leading  to  the  decision  on  the  existence  of  an  excessive 
deficit provided for in Article 126(4), (5) and (6) TFEU only if the double condition 
of  the  overarching  principle  —  that,  before  these  relevant  factors  are  taken  into 
account, the general government deficit remains close to the reference value and its 
excess over the reference value is temporary — is fully met. 

However, those factors shall be taken into account in the steps leading to the decision 
on the existence of  an  excessive deficit when  assessing  compliance on the basis of 
the debt criterion. 

5. Where Member States are allowed to deviate from their net expenditure path in the 
event  of  a  severe  economic  downturn  in  the  euro  area  or  in  the  Union  as  a  whole 
pursuant to Article 24 of Regulation (EU) [on the preventive arm], the Commission 
and the Council, in their assessment, may decide not to conclude on the existence of 
an excessive deficit. 

6.  If  the  Council,  acting  under  Article  126(6)  TFEU,  decides  that  an  excessive 
deficit  exists  in  a  Member  State,  the  Council  and  the  Commission  shall,  in  the 
subsequent  procedural  steps  of  that  Article  of  the  TFEU,  take  into  account  the 
relevant factors referred to in paragraph 3 of this Article, as they affect the situation 
of  the  Member  State  concerned,  including  as  specified  in  Article  5(2)  of  this 
Regulation, in particular in establishing a deadline for the correction of the excessive 
deficit and eventually extending that deadline. However, those relevant factors shall 
not be taken into account for the decision of the Council under Article 126(12) TFEU 
on the abrogation of some or all of its decisions under Article 126(6) to (9) and (11) 
TFEU.’; 

-------------------------- 
*Regulation (EU) […] of [insert a date] [insert full title] (OJ L …). 

(2) 

Article 3 is replaced by the following: 

‘Article 3 

1.  Within  two  weeks  of  the  adoption  by  the  Commission  of  a  report  issued  in 
accordance with Article 126(3) TFEU, the Economic and Financial Committee shall 
formulate  an  opinion  in  accordance  with Article  126(4) TFEU.  The  opinion  of  the 
Economic and Financial Committee shall be made public. 

2.  Taking fully into account the opinion referred to in paragraph 1 of this Article, the 
Commission, if it considers that an excessive deficit exists, shall address an opinion 
and a proposal to the Council in accordance with Article 126(5) and (6) TFEU and 
shall inform the European Parliament thereof. 

3.  The  Council  shall  decide  on  the  existence  of  an  excessive  deficit  in  accordance 
with Article  126(6)  TFEU,  as  a  rule  within  four  months  of  the  reporting  dates 
established in Article 3(2) and (3) of Regulation (EC) No 479/2009. When it decides 
that  an  excessive  deficit  exists,  the  Council  shall  at  the  same  time  make 
recommendations to the Member State concerned in accordance with Article 126(7) 
TFEU. The Council shall make its decisions and recommendations public.  

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4.  The Council recommendation made in accordance with Article 126(7) TFEU shall 
establish a maximum deadline of six months for effective action to be taken by the 
Member  State  concerned.  When  warranted  by  the  seriousness  of  the  situation,  the 
deadline  for  effective  action  may  be  three  months.  The  Council  recommendation 
shall  also  establish  a  deadline  for  the  correction  of  the  excessive  deficit.  In  its 
recommendation, the Council shall also request that the Member State implements a 
corrective  net  expenditure  path,  which  ensures  that  the  general  government  deficit 
remains or is brought and maintained below the reference value within the deadline 
set  in  the  recommendation.  For  the  years  when  the  general  government  deficit  is 
expected to exceed the reference value, the corrective net expenditure path shall be 
consistent  with  a  minimum  annual  adjustment  of  at  least  0,5%  of  GDP  as  a 
benchmark. 

The  corrective  net  expenditure  path  shall  also  put  the  debt  ratio  on  a  plausibly 
downward path or keep it at a prudent level having regard to the criteria established 
in  Annex  I  of  Regulation  (EU)  [on  the  preventive  arm].  The  corrective  net 
expenditure path shall ensure that the  average annual fiscal adjustment effort in the 
first  three  years  is  at  least  as  high  as  the  average  annual  fiscal  effort  of  the  total 
adjustment period. 

5. Within the deadline provided for in paragraph 4 of this Article, the Member State 
concerned  shall  report  to  the  Council  and  the  Commission  on  action  taken  in 
response  to  the  Council’s  recommendation  under  Article  126(7)  TFEU.  The  report 
shall  include  the  targets  for  government  expenditure  and  revenue  and  for  the 
discretionary measures on both the expenditure and the revenue side consistent with 
the Council’s recommendation, as well as information on the measures taken and the 
nature  of  those  envisaged  to  achieve  the  targets.  The  report  shall  also  include  the 
opinion  of  the  independent  fiscal  institution  of  the  Member  State  concerned  on  the 
adequacy  of  the  measures  taken  and  envisaged  with  respect  to  the  targets.  The 
Member State shall make the report public. 

 6.  Where  effective  action  has  been  taken  in  compliance  with  a  recommendation 
under  Article  126(7)  TFEU  or  where  exceptional  circumstances  outside  the  control 
of the government with a major impact on the public finances of the Member State 
concerned,  including  on  the  respect  of  the  corrective  net  expenditure  path 
recommended by the Council pursuant to paragraph 4 of this Article, occur after the 
adoption  of  that  recommendation,  the  Council  may  decide,  on  a  recommendation 
from  the  Commission,  to  adopt  a  revised  recommendation  under  Article  126(7) 
TFEU. The revised recommendation, taking into account the relevant factors referred 
to  in  Article  2(3)  of  this  Regulation  may,  in  particular,  extend  the  deadline  for  the 
correction  of  the  excessive  deficit  by  one  year  as  a  rule.  In  case  the  Council  has 
established  the  existence  of  a  severe  economic  downturn  in  the  euro  area  or  in  the 
Union  as  a  whole  in  accordance  with  Article  24  of  Regulation  (EU)  [on  the 
preventive  arm],  the  Council  may  also  decide,  on  a  recommendation  from  the 
Commission,  to  adopt  a  revised  recommendation  under  Article  126(7)  TFEU 
provided  that  this  does  not  endanger  fiscal  sustainability  in  the  medium  term.  The 
revised recommendation may, in particular, extend the deadline for the correction of 
the excessive deficit by one year as a rule.’; 

(3) 

Article 4 is replaced by the following: 

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‘Article 4 

The Council, when considering whether effective action has been taken in response 
to its recommendations made in accordance with Article 126(7) TFEU, shall base its 
decision on the report submitted by the Member State concerned in accordance with 
Article  3(5)  of  this  Regulation  and  its  implementation,  as  well  as  on  any  other 
publicly  announced  and  sufficiently  detailed  decisions  by  the  government  of  the 
Member State concerned. 

Where  the  Council  establishes,  in  accordance  with  Article  126(8)  TFEU,  that  the 
Member  State  concerned  has  failed  to  take  effective  action,  it  shall  report  to  the 
European Council accordingly.’; 

(4) 

Article 5 is amended as follows: 

(a) 

paragraph 1 is replaced by the following: 

‘1.  Any  Council  decision  to  give  notice  to  the  participating  Member  State 
concerned to take measures for the deficit reduction in accordance with Article 
126(9) TFEU shall be taken within two months of the Council decision under 
Article 126(8) TFEU establishing that no effective action has been taken. In the 
notice, the Council shall request that the Member State implements a corrective 
net expenditure path which ensures that the general government deficit remains 
or is brought and maintained below the reference value within the deadline set 
in the notice. For the years where the general government deficit is expected to 
exceed  the  reference  value,  the  corrective  net  expenditure  path  shall  be 
consistent  with  a  minimum  annual  adjustment  of  at  least  0,5%  of  GDP  as  a 
benchmark. 

The corrective net expenditure path shall also put the debt ratio on a plausibly 
downward  path  or  keep  it  at  a  prudent  level  having  regard  to  the  criteria 
established  in  Annex  I  of  Regulation  (EU)  [on  the  preventive  arm].  The 
corrective  net  expenditure  path  shall  ensure  that  the  average  annual  fiscal 
adjustment effort in the first three years is at least as high as the average annual 
fiscal  effort  of  the  total  adjustment  period.  The  Council  shall  also  indicate 
measures  conducive  to  the  achievement  of  the  corrective  net  expenditure 
path.’; 

(b)  paragraph 2 is replaced by the following: 

‘2.  Where  effective  action has been taken in  compliance with  a notice  under 
Article 126(9) TFEU or where exceptional circumstances outside the control of 
the government with major impact on the public finances of the Member State 
concerned,  including  on  the  respect  of  the  corrective  net  expenditure  path 
referred  to  in  paragraph  1  of  this  Article,  occur  after  the  adoption  of  that 
notice, the Council may  decide, on a recommendation from  the Commission, 
to  adopt  a  revised  notice  under  Article  126(9)  TFEU.  The  revised  notice, 
taking  into  account  the  relevant  factors  referred  to  in  Article  2(3)  of  this 
Regulation  may,  in  particular,  extend  the  deadline  for  the  correction  of  the 
excessive deficit by one year as a rule. In case the Council has established the 
existence of a severe economic downturn in the euro area or in the Union as a 

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whole  in  accordance  with  Article  24  of  Regulation  (EU)  [on  the  preventive 
arm],  the  Council  may  also  decide,  on  a  recommendation  from  the 
Commission,  to  adopt  a  revised  notice  under  Article  126(9)  TFEU,  on 
condition  that  it  does  not  endanger  fiscal  sustainability  in  the  medium  term. 
The revised notice may, in particular, extend the deadline for the correction of 
the excessive deficit by one year as a rule.’; 

(5) 

in Article 6, paragraph 1 is replaced by the following: 

‘1. The Council, when considering whether effective action has been taken in response 
to its notice made in accordance with Article 126(9) TFEU, shall base its decision on 
the report submitted by the Member State concerned in accordance with Article 5(1a) 
of this Regulation and its implementation, as well as on any other publicly announced 
and sufficiently detailed decisions by the government of the Member State concerned. 
The outcome of the surveillance mission carried out by the Commission in accordance 
with Article 10a of this Regulation shall be taken into account.’; 

(6) 

Article 8 is replaced by the following: 

‘Article 8 

1. Any Council decision under Article 126(11) TFEU to intensify sanctions shall be 
taken no later than two months after the reporting dates pursuant to Regulation (EC) 
No 479/2009. 

2. Any Council decision under Article 126(12) TFEU to abrogate some or all of its 
decisions  shall  be  taken  as  soon  as  possible  and  in  any  event  no  later  than  two 
months after the reporting dates pursuant to Regulation (EC) No 479/2009. 

3. A Council decision shall only be taken pursuant to Article 126(12) TFEU where 
budgetary forecasts as provided by the Commission indicate that the deficit has been 
brought durably below the reference value and, where the excessive deficit procedure 
was opened on the basis of the debt criterion, the Member State concerned respected 
the corrective net expenditure path set by the Council in accordance with Article 3(4) 
or  Article  5(1)  of  this  Regulation  over  the  previous  2  years  and  is  projected  to 
continue to do so in the current year on the basis of the Commission forecast.’; 

(7) 

in Article 9, paragraph 1 is replaced by the following:  

‘1.  The excessive deficit procedure shall be held in abeyance: 

(a)  where 

the  Member  State  concerned  acts 

in  compliance  with 

recommendations made in accordance with Article 126(7) TFEU; 

(b) 

 where the participating Member State concerned acts in compliance with 
notices given in accordance with Article 126(9) TFEU.’; 

(8) 

Article 10 is replaced by the following: 

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‘Article 10 

1.  The  Council  and  the  Commission  shall  regularly  monitor  the  implementation  of 
action taken: 

-  by  the  Member  State  concerned  in  response  to  recommendations  made 
under Article 126(7) TFEU; 

-  by  the  participating  Member  State  concerned  in  response  to  notices  given 
under  Article 126(9) TFEU. 

2.  Where action by a participating Member State is not being implemented or, in the 
Council's  view,  is  proving  to  be  inadequate,  the  Council  shall  immediately  take  a 
decision under Article 126(9) TFEU or Article 126(11) TFEU respectively. 

3.  Where  actual  data  pursuant  to Regulation  (EC)  No  479/2009 indicate  that  an 
excessive deficit has not been corrected by a participating Member State within the 
time limits specified either in recommendations issued under Article 126(7) TFEU or 
notices  issued  under Article  126(9) TFEU,  the  Council  shall  immediately  take  a 
decision under Article 126(9) TFEU or Article 126(11) TFEU respectively.’; 

(9) 

Article 10a is amended as follows: 

(a) 

paragraph 1 is replaced by the following: 

‘1. The  Commission  shall  ensure  a  permanent  dialogue  with  authorities  of  the 
Member States in accordance with the objectives of this Regulation. To that end, 
the  Commission  shall,  in  particular,  carry  out  missions  for  the  purpose  of  the 
assessment  of  the  actual  economic  situation  in  the  Member  State  and  the 
identification of  any  risks or difficulties in  complying with  the objectives  of this 
Regulation and allow an exchange with other relevant stakeholders, including the 
national independent fiscal institutions.’; 

(b)  paragraph 2 is replaced by the following: 

‘2.  Following the adoption by the Council of a notice under Article 126(9) TFEU, 
the  Commission  shall  carry  out  a  dedicated  surveillance  mission  to  the  Member 
State concerned to discuss the measures that the Member  State intends to take in 
response  to  the  measures  judged  necessary  following  the  notice  under  Article 
126(9) TFEU. Upon invitation by the parliament of the Member State concerned, 
the Commission may present its assessment of the economic and fiscal situation in 
the  Member  State.  Enhanced  surveillance  may  be  undertaken  for  Member  States 
which are the subject of recommendations and notices issued following a decision 
pursuant  to  Article  126(8)  TFEU  and  decisions  under  Article  126(11)  TFEU  for 
the purposes of on-site monitoring. The Member States concerned shall provide all 
necessary  information  for  the  preparation  and  the  conduct  of  the  surveillance 
mission.’; 

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(10) 

Article 12 is replaced by the following: 

‘Article 12 

1.  The amount of the fine shall amount to up to 0,05% of GDP for a 6-month period 
and  be  paid  every  6  months  until  the  Council  assesses  that  the  Member  State 
concerned  has  taken  effective  action  in  response  to  the  notice  issued  under  Article 
126(9) TFEU.  

2.  In  each  6-month  period  following  that  in  which  a  fine  is  imposed,  until  the 
decision  on  the  existence  of  an  excessive  deficit  is  abrogated,  the  Council  shall 
assess whether the participating Member State concerned has taken effective action 
in  response  to  the  Council  notice  in  accordance  with  Article  126(9)  TFEU.  In  this 
semi-annual assessment the Council shall decide, in accordance with Article 126(11) 
TFEU,  to  intensify  the  sanctions,  unless  the  participating  Member  State  concerned 
has complied with the Council’s notice.  

3. The  cumulated  amount  of  the  fines  referred  to  in  paragraphs  1  and  2  shall  not 
exceed 0,5 % of GDP.’; 

(11) 

Articles 14 and 15 are replaced by the following: 

‘Article 14 

1.  In  accordance  with Article  126(12) TFEU,  the  Council  shall  abrogate  the 
sanctions referred to in  Article 126(11), first and second indent, TFEU depending on 
the significance of the progress made by the participating Member State concerned in 
correcting the excessive deficit. 

Article 15 

In accordance with Article 126(12) TFEU, the Council shall abrogate all outstanding 
sanctions if the decision on the existence of an excessive deficit is abrogated. Fines 
imposed in  accordance  with Article 12 of this Regulation will not  be reimbursed to 
the participating Member State concerned.’; 

(12) 

Articles 16 and 17 are deleted. 

(13) 

in Article 17a, paragraph 1 is replaced by the following: 

‘1. By  31  December  2030  and  every  five  years  thereafter,  the  Commission  shall 
publish a report on the application of this Regulation. 

That report shall review at least: 

(a) the effectiveness of this Regulation; 

(b) the  progress  in  ensuring  closer  coordination  of  economic  policies  and  sustained 
convergence of economic performances of the Member States in accordance with the 
TFEU. 

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2.  Where appropriate, the report referred to in paragraph 1 shall be accompanied by 
a proposal for amendments to this Regulation. 

3. The report shall be forwarded to the European Parliament and to the Council.’; 

(14) 

the following Article 17b is inserted: 

‘Article 17b 

The  Council,  on  a  recommendation  from  the  Commission,  shall  adopt  a  revised 
recommendation under Article 126(7) TFEU or a revised notice under Article 126(9) 
TFEU to Member States subject to a recommendation under Article 126(7) TFEU or 
to  a  notice  under  Article  126(9)  TFEU  on  [date  of  entry  into  force  of  amending 
Regulation], and that have taken effective action. 

It shall adopt the revised recommendation or notice together with the adoption of the 
recommendation pursuant to Article 16 of Regulation (EU) [on the preventive arm] 
setting the net expenditure path.’; 

(15) 

the Annex is deleted. 

Article 2  

Entry into force 

This Regulation shall enter into force on the […] day following that of its publication in the 
Official Journal of the European Union. 

This Regulation shall be binding in its entirety and directly applicable in all Member States. 

Done at Brussels, 

For the Council 
The President 

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