EU Financial Rules Reformed to Simplify and Improve Compliance, But Critics Question Fairness and Politically Motivated Decision-Making

The European Parliament has recently approved the reform of the EU’s financial rules after years of work on the Stability and Growth Pact. The negotiators reached a preliminary agreement in February, which was now approved by the Parliament. This reform aims to simplify and improve compliance with the rules while maintaining acceptable debt and deficit levels for EU countries. Each member country will have a net spending path prepared by the EU Commission based on structural factors, with different rules for how quickly debt must be reduced based on the debt ratio.

If debt exceeds 90 percent of GDP, it must be reduced by one percentage point annually. Countries with 60–90 percent debt ratio have a lower adjustment rate of 0.5 percentage points. Member countries facing excessive debt or deficits can request a dialogue with the Commission before adjustments are instructed, allowing them to explain their situation better. However, Finnish Prime Minister Petteri Orpo and Finance Minister Riikka Purra have emphasized the importance of avoiding EU monitoring, questioning why larger member states seem to evade such scrutiny.

MEP Nils Torvalds believes that the EU Commission will not risk categorizing heavily indebted large EU member states as in need of observation due to political considerations. He is skeptical about this approach and questions whether larger member states are held to different standards than smaller ones when it comes to complying with financial rules. Eero Heinäluoma, leader of the Social Democrats, is pleased with the new financial rules and believes they provide a more realistic and acceptable path for member states to follow.

The public debt-to-GDP ratio was highest in Greece at 166 percent in the third quarter of 2023, followed by Italy, France, Spain, Belgium, and Portugal. While these countries face significant challenges when it comes to reducing their debts, they also have greater bargaining power within the EU due to their size and economic importance. As such, they may be able to lobby for more favorable treatment when it comes to compliance with financial rules.