Reverting to fiscal discipline
EU agrees on the imposition of specific rules for budgets of member-states as of 2025
The European Union member-states, including Greece, are returning to fiscal discipline after four years of the Stability Pact’s suspension, due to the Covid-19 and energy crises. This is according to the agreement reached on Saturday between the European Council and the European Parliament on new EU fiscal rules.
Although the new rules, which will apply from 2025, contain elements of flexibility compared to the existing pact, they are still restrictive at a time when the European economy is struggling to escape stagnation, which has been a point of criticism from some economists.
This is mainly the result of the interventions of Germany and other “frugal” states in the initial proposals of the Commission, which had the effect of setting quantitative targets for reducing deficits and debt.
A source from the Ministry of Finance explained on Monday that the new rules leave no room for “allowances,” even if revenue outperformance is achieved due to a healthy economy.
Only if new taxation is imposed will the government be able to increase spending accordingly. From 2025, the sources comment, the government will be able to give the pension increases provided for by law, but not extraordinary gifts.
The new goals will be reflected in the Fiscal Structural Program 2025-2028, which Greece will submit sometime between June and October, based on the four-year “fiscal path” that the Commission will have indicated to it in the meantime. The new program, which will replace the Stability Pact, will incorporate reforms, besides the fiscal objectives.
According to the analysis by ministry officials, the new rules are based on the following: The deficit must be below 3% of gross domestic product, net primary expenditure (general government expenditure minus interest, EU revenue and possible new revenue measures) now becomes the main compliance criterion, and debt should be reduced by 1% of GDP on an annual basis.
