Debate: Revision of the Stability and Growth Pact
Date: TUESDAY, 9 MAY 2023
Speaker: Maroš Šefčovič
Language: EN

And indeed, as Madam Minister has just highlighted, the two weeks ago, the Commission presented its legislative proposals for an ambitious reform of the European economic governance framework, in particular the Stability and Growth Pact. For over 25 years, the Stability and Growth Pact has provided a shared basis for EU fiscal policies and an essential underpinning for the Economic and Monetary Union. However, its shortcomings have also become all too evident whether one looks at the development of public debt, at investment levels or our economic performance over the past two decades. Moreover, the challenges we face today are a world away from those of the 90s when the pact was initially designed. Public debt has surged and so have our investment needs, fit for a green and digital transition, security and defence or the resilience of our industrial supply chains. The Commission’s proposals address both of those aspects. They aim to bring about a more gradual but steadier reduction in debt levels and to boost sustainable and inclusive growth through investment and reforms. We have reached this point after an extensive public debate. We have consulted widely with the EU institutions, national governments, social partners and other stakeholders, and of course, there were several interactions with the European Parliament and Members of the European Parliament. Since we published our orientations last November, we have undertaken intensive discussions with Member States in the ECOFIN  Based on all the input received, our proposals represent a balanced approach that will make the EU’s fiscal rules more effective. Let me highlight four key elements. First, our proposals promote greater national ownership through medium term fiscal structural plans prepared by the Member States within a common EU framework with sufficient safeguards. In this way, we simultaneously ensure equal treatment and consideration of country-specific situations. Member States should ensure that their debt to GDP ratio declines to, or stays at, prudent levels and that their deficit is brought to, or maintained, below 3%. This implies that Member States with debt of about 60% of GDP or with a deficit of about 3% of GDP, deliver a fiscal adjustment over the planning horizon based on a transparent common framework. Second, as a counterpart to this surveillance framework that provides more leeway to Member States in designing their fiscal trajectories, our proposals allow for more credible enforcement. Specifically, deviations from the agreed fiscal path would be the basis for possible, reasonable and strengthened enforcement actions. And third, our proposals simplify our rules and focus on fiscal challenges. This means taking into account Member States’ different initial fiscal positions and their different public debt challenges. It also means relying on a single operational indicator based on the evolution of expenditure, net of new revenue measures. By focusing on net expenditure, we also avoid the typical procyclical bias that fiscal policy has had over the past years – namely, we expanded in good times and cut in bad times. And last but not least, our proposals will facilitate reforms and investment commitments underpinned by an extended and more gradual adjustment path. These should be growth enhancing, supportive of fiscal sustainability and should address the common EU priorities such as the Green Deal, the European Pillar of Social Rights or the Digital Decade. They should ensure that the overall level of nationally financed public investment over the lifetime of the plan is higher than in the preceding period. And this is, of course, a very significant innovation compared to the current framework. We are now looking forward to engaging with the European Parliament and Member States and we will work tirelessly to help build a consensus and bridge differing views. Agreeing on the new framework of rules is in our common interest. It would reassure the financial markets and investors and it would give governments clarity on the way forward, also considering the deactivation of the general escape clause at the end of this year. Time is of the essence. The Council last month called for legislative work to be completed by the end of the year, and I am confident that we can achieve that if you all rise to the challenge.