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New EU economic rules bring back risk of austerity

The reform of the EU’s economic rules proposed on 26th April 2023 by the European Commission will allow the return of austerity and prevent climate action, unless changes are made between now and December.

The current rules, which limit member state budget deficits to 3% of GDP and debt to 60% of GDP, have been suspended since 2020 to deal with economic consequences of the pandemic.

The suspension will end in 2024 and today’s proposals would mean that from next year any member state with a deficit above 3% will have to make a minimum fiscal adjustment of 0.5% of GDP per year.

  • As 10 member states* have a deficit above 3%, it will mean they will have to begin making choices about spending cuts next year and this risks opening the way back to austerity.
  • Member states breaching the 3% or the 60% thresholds will also be required to ensure national net expenditure growth remains below medium-term output growth. This will add extra pressure on member states to make spending cuts.
  • The rules will mean member states cannot meet the EU’s own targets for investment in the green and digital economy for more and better jobs.

The European Trade Union Confederation (ETUC) is calling for changes to guarantee against the reintroduction of austerity measures.

Instead, the ETUC calls for the introduction of a ‘golden rule of public investment’, while ensuring an adequate level of current spending, which would ensure that net public investment is excluded from balanced budget rules.

The EU should also build on its Recovery and Resilience Facility and expand European fiscal capacity to ensure that member states can deliver the scale of investment needed for the green and digital economic transitions.

ETUC General Secretary Esther Lynch said:

“The risk of a return to austerity has increased today. Most member states could be forced to make substantial spending cuts from next year in order to meet the new debt and deficit rules. That would mean fewer jobs, lower wages, less public services and higher poverty.

“A reform of the EU’s economic rules is long overdue but these proposals fall far short of the change needed to make Europe’s economy work for people. Fundamentally, Europe will have rules which risk prioritising cuts and austerity rather than investment and growth.

“There couldn’t be any better proof that these rules are damaging and short-sighted than the fact that they will prevent member states from achieving the EU’s own targets for investment in the green and digital economy.

“The EU needs to ensure that member states can guarantee sufficient investments and current spending – we need to build hospitals and schools and pay for the nurses and teachers to staff them. It’s essential that all Member States can make those investments, and we need strong EU’s fiscal capacity to level the playing field when it comes to investment.”


*Italy, Hungary, Romania, Malta, Spain, France, Latvia, Belgium, Poland, Czechia

Posted in Semester News

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