The new Stability and Growth Pact has been definitively approved. It will now have to be published in the Official Journal of the EU to come into force: it is scheduled for Tuesday, according to a note from the Council.
The package was approved by EU countries unanimously even if only one of the three texts required it: the regulation on the corrective part of the deficits. Only Belgium abstained on the regulation on the preventive part of the Stability Pact, which required a qualified majority as required by the directive on the requirements of the budgetary framework. Italy voted in favor of all three texts. But last Tuesday they were approved by the European Parliament by a large majority, with the vote against by the M5s and the abstention of almost all the other Italian MEPs, including those of the government parties: Fratelli d’Italia, Forza Italia and Lega. The formal green light was given by the Agriculture Council meeting in Luxembourg.
The old Stability Pact and the 11 EU countries beyond the threshold
This year The Stability Pact which was suspended in 2020 due to Covid is back in force.
However, the new rules will now apply.
On June 19th, after the European elections, the EU Commission intends to propose to the Council to launch procedures for excessive deficit based on the data relating to 2023 released by Eurostat last week.
Eleven EU countries recorded a deficit on GDP exceeding 3% (the maximum permitted threshold)., including Italy which has the highest deficit in the Union at 7.4%, followed by Hungary (6.7%) and Romania (6.6%).
It is not a given that the EU Commission will open the excessive deficit procedure to everyonewill have to take several factors into account.
What is the deficit procedure
The Commission’s spokesperson for the Economy, Veerle Nuyts, explained during the usual midday press briefing on Monday that the excessive deficit procedure involves several stagesand, the first of which is a report prepared by the Commission pursuant to Article 126.3, which examines the reasons for exceeding the 3% threshold in the deficit/GDP ratio. This report will be prepared in the context of the spring package, expected on 19 June. If, on the basis of the conclusions of the report and taking into account the opinion of the Economic and Financial Committee of the Council, the Commission ‘considers that an excessive deficit exists’ in a Member State, it shall propose to the Council to adopt measures «decisions» about. However, it is not clear whether it will take place on the same day: “We are still reflecting on the calendar”, specified the spokeswoman. Subsequently, the Commission proposes to the Council to adopt some “recommendations” to the country in question so that it can bring the deficit back below the expected threshold “in a given period of time”. These recommendations fix a “deadline” and a recovery “trajectory” for the deficit in question.
The new rules
Under the new Stability Pact, if Italy finds itself in proceedings for excessive deficit, the balances will have to be corrected “at least” by 0.5% of GDP per year: about 10 billion, potentially at a discount of 2 to compensate for the increase in interest costs, a flexibility which however only applies for the years from 2025 to 2027. Furthermore defense spending will be considered a “relevant factor” in the calculation of deficit reduction plans. For example, Poland relies on this, recording a deficit of 5.1% in 2023 but spending 3.9% of its GDP on defence. The vice-president of the EU Commission Valdis Dombrovskis, with responsibility for economic affairs, then explained to the Financial Times that “there could be borderline cases” and “sand there is a country whose excessive deficit is close to 3% but temporary, we could decide not to use the excessive deficit procedure. The 2024 budget may come into play.” And Spain and the Czech Republic are confident in this.
All EU countries will have to provide medium-term plans by September 30 that will outline their spending targets and the ways in which they will be undertaken investments and reforms.
Countries with high levels of deficit or debt will receive pre-plan indications on spending objectives.
Violating the rules of the new Stability Pact is not an option: the European Central Bank has explained that, in the event of tensions on the markets, it could exclude countries that do not respect the governance just approved from its new bond purchase programme.
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