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Brussels will change the budget rules to impose stricter sanctions on member states

A proposed overhaul of the system from the European Commission would subject EU nations who violate the bloc's fiscal rules to higher fines and parliamentary hearings where they would have to defend their actions.

Member states would be able to agree on more practical debt-reduction courses with the commission under the plan that will be unveiled on Wednesday, freeing up more money for public investment. According to the draft communication, enforcement would also be strengthened, with a stiffer regime for countries that face "substantial" public debt issues.

Before the stability and growth pact, which establishes the union's fiscal regulations, is fully implemented again in 2024 after being suspended in 2020 during the early weeks of the pandemic, the commission wants to agree on a new strategy. It happens at a time when member states are dealing with increasing financial strain and the possibility of a recession brought on by the energy crisis.

The draft communication calls for member states to reach “swift agreement” to change the EU's budget regulations, which are viewed as being too complicated and poorly enforced. The memo suggested that "thorough reform" is required, involving agreed-upon legislative change between the council and the European parliament.

The main goal of the new regulations is to offer member states more control over their debt reduction strategies, which are decided upon with the commission and approved by the council of ministers. Once a deal was reached, member states would be more pressured to follow through on their obligations and more realistically threatened with consequences if they didn't.

Fines for rule violations would be reduced as part of the enforcement adjustments, making them more likely to be applied than they are under the current system. In the meanwhile, "reputational" fines would be strengthened, and ministers would be required to address excessive deficits at a European Parliament hearing.

Under the proposed regulations, heavily indebted member states would no longer be required to cut their debt-to-gross domestic product ratios by at least one-twentieth of the gap between their current level and the EU's 60% objective each year.

Instead, the commission would present a four-year strategy for an EU member state to start reducing its public debt burden. A more gradual adjustment path lasting up to seven years could be requested by the EU capital. Any deadline extensions would need to be supported by commitments to public investment and reform, with the plans approved by the council after being agreed upon by the commission and member states.

Net primary public expenditure caps would be established annually, and failure to comply would result in fines. Procedures for sanctioning countries with more vulnerable public finances would be more automatic. In the event that countries do not reduce their excessive deficits, EU funding may be withheld.

The draft communication stated that "the reformed framework should tackle the prevailing challenges and contribute to making Europe more resilient, by allowing for sustaining strategic investment for years to come and by reducing high public debt ratios in a realistic, gradual and sustained manner."

Officials caution that the plans will not easily get broad agreement among EU member states. Christian Lindner, the German finance minister, has been particularly vocal in his criticism of the commission's suggested strategy.

He previously stated to the Financial Times that it would be "unwise" for nations to be able to reach separate agreements over their public budgets after bilateral negotiations with the commission. The integrity of the pact rested on the requirement that "the rules have to be implemented by everybody, in the same way," he continued.


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