The EU Commission wants to slash threatened financial sanctions against member states that fail to cut their debt or budget deficits as part of its economic and financial simplification package published on Thursday (2 October).
The threat of fining national capitals up to 0.2 percent of GDP — equivalent to billions of euros for the EU’s larger economies — was introduced in a series of economic governance laws passed by MEPs in 2012/13 at the height of the eurozone debt crisis.
Now the commission wants to drop the 0.2 percent maximum to 0.05 percent.
“We consider that it might be more useful to have low sanctions,” a commission official told reporters on Thursday, though he added that “these amounts are not totally trivial”.
Originally drawn up in the midst of the eurozone debt crisis, which saw five EU countries — Spain, Ireland, Cyprus, Greece and Portugal — forced to agree bailout loans to avoid sovereign default, the EU’s economic governance rules were designed to show that the EU executive would be tough on countries running up hefty debts and deficits.
In practice, however, despite France repeatedly flouting the rules during Francois Hollande’s presidency between 2012 and 2017, financial sanctions have never been imposed, partly because of fears that this would harden public opinion against the EU.
The commission official said that sanctions were a “delicate issue” and that the decision to lower them was “based on the experiences of the past”.
As part of the same ‘simplification’ measures, the commission has proposed to reduce the reporting burden on member states, which it says will generate savings in administrative costs.
“A lot of this information did not serve any purpose,” said a commission official, adding that the reforms were largely a “cleaning up” exercise and did not change the substance of the fiscal rules.
The EU’s fiscal rules were suspended between 2020 and 2023 to help countries deal with the effects of the coronavirus pandemic and the consequences of the Russian invasion of Ukraine.
They were then slightly revised by EU lawmakers in April 2024.
The rules require governments to cut debt burdens over 60 percent of GDP by at least one percentage point per year, while countries facing an ‘excessive deficit procedure” for breaching the three percent ceiling would be expected to reduce deficits by 0.5 percent per year.
However, EU lawmakers rejected proposals to exclude interest payments and green investment spending from the calculation of the 0.5 percent target.
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Benjamin Fox is a seasoned reporter and editor, previously working for fellow Brussels publication Euractiv. His reporting has also been published in the Guardian, the East African, Euractiv, Private Eye and Africa Confidential, among others. He heads up the AU-EU section at EUobserver, based in Nairobi, Kenya.
Benjamin Fox is a seasoned reporter and editor, previously working for fellow Brussels publication Euractiv. His reporting has also been published in the Guardian, the East African, Euractiv, Private Eye and Africa Confidential, among others. He heads up the AU-EU section at EUobserver, based in Nairobi, Kenya.