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EU Commissioner calls for debt rules to be less ‘strict’

The coronavirus pandemic has forced many EU states to take on huge new debts. Budget commissioner Johannes Hahn said the single-bloc rule for total public debt is no longer appropriate.

European Union Budget Commissioner Johannes Hahn on Saturday called for more flexible limits for highly indebted EU states forced to take on new debt due to the COVID-19 pandemic.

His comments came days after the head of the European Central Bank, Christine Lagarde, said the rural economy was “on crutches”.

In comments published by the German newspaper Die Welt, Hahn called for the reform of the bloc’s Stability and Growth Pact, suggesting that the rules are no longer viable.

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What is the EU’s Stability and Growth Pact?
The Stability and Growth Pact was signed in 1997 to reinforce the budgetary rules set out in the 1992 Maastricht Treaty.

EU states must ensure that their total debt does not exceed 60% of gross domestic product (GDP) in any year. States must incur budget deficits of up to 3% of GDP.

But the pact proved to be unworkable against larger EU countries, such as France and Germany, that had run “excessive” deficits for many years, although Germany has remained within the limit since 2018.

France’s current debt to GDP is 119%, while Germany’s is 54%.

EU Budget Commissioner Johannes Hahn
Source: dw.com

What are Hahn’s proposals?

Hahn wants EU countries hardest hit by the pandemic to regain their savings without harsh sanctions from creditors under current rules.

For example, Greece, with a debt of 205% of GDP, or Italy, with 155%, are unlikely to reach the current target of 60% in the medium term.

“The fiscal policy goals for these countries must be realistic,” said the commissioner. Instead of a rigid rule, each EU state must have an individual and achievable goal to reduce its debt.

Hahn said that weaker eurozone countries require large investments from governments before further economic growth boosts tax revenues that help reduce the burden of debt.

But he insisted that, with the reforms, countries would still need to make “structural adjustments” to public spending.

Hahn added that consultations on reform of the pact are likely to begin in the fall.

EU recovery funds requested for

On Friday, Brussels said that only nine of the EU’s 27 countries presented their national plans to unlock subsidies and recovery loans worth billions of euros.

France, Greece, Portugal, Slovakia, Germany, Denmark, Spain, Latvia and Luxembourg are expected to have company from other states in the coming weeks, the European Commission said.

The EU established a € 750 billion ($ 907 billion) recovery package last year to stimulate the bloc’s economies hit by the pandemic.

Countries must submit plans on how they intend to use the money, subject to certain conditions.

EU states must spend at least 37% of the funds allocated to support environmental purposes and 20% on digitization.

According to a complicated formula, Italy and Spain are expected to receive more money from the EU program because their economies suffered the most in 2020.

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