14 Mar Everything about the EU’s new fiscal policy guidance
The European Commission has set a new fiscal policy guidance for 2024 that aims to create economic stability while deactivating the SGP’s general escape clause. Here we resume the main concepts around it and some ways of interpreting and framing this new set of European policies.
The European Commission’s fiscal policy guidance for 2024 is a set of recommendations that aim to guide EU member states in their fiscal policies for the year 2024. The guidance is based on the principles of the Stability and Growth Pact (SGP), updated in 2020, designed to ensure satisfactory public finances and fiscal discipline within the EU.
This fiscal policy guidance is published in a particular context: the SGP’s general escape clause, that provided a temporary deviation from the budgetary requirements that normally apply in the event of a severe economic downturn –as it was 2020’s COVID-19’s recession– will end this year, while several EU members are still facing tough challenges regarding their public finances. Besides, the end of the period of the general safeguard clause implies the restoration of country-specific recommendations on fiscal policy, quantified and differentiated according to Member States’ public debt challenges.
In that sense, the European Commission’s guidance can be understood as a general guidelines document with the aim of preparing the EU members’ economic stability. To do so, the fiscal policy guidance structures its recommendations around five main concepts:
- Budgetary sustainability: The guidance emphasizes the importance of achieving budgetary sustainability, which means that member states’ budget deficits should not exceed 3% of their gross domestic product (GDP) and public debt should not exceed 60% of GDP. Member states are encouraged to implement measures to reduce their deficits and debts in a sustainable way.
- Economic growth: The guidance also recognizes the importance of promoting economic growth and job creation in the EU. Member states are encouraged to implement measures that support investment, innovation, and entrepreneurship, as well as measures that address labor market challenges and promote social inclusion.
- Structural reforms: The guidance emphasizes the need for member states to implement structural reforms that improve the functioning of their economies and increase their resilience to economic shocks. These reforms may include measures that improve the quality of public finances, promote competition and innovation, and enhance the functioning of labor markets.
- Fiscal policy coordination: The guidance also highlights the importance of coordinating fiscal policies across the EU to ensure that they are consistent with the broader objectives of the EU’s economic governance framework. Member states are encouraged to participate in the EU’s coordination processes and to communicate their fiscal plans and policies effectively.
- Green transition: Finally, the guidance emphasizes the importance of the green transition and the need for member states to invest in climate-friendly policies and initiatives. Member states are encouraged to support the transition to a low-carbon economy by implementing measures that reduce greenhouse gas emissions, promote renewable energy, and enhance the energy efficiency of buildings and transport.
The European Commissioner for Economy, Paolo Gentiloni, is confident about the positive impact that these policies could create, while recognizing the high levels of economic uncertainty that EU members have managed. In that sense, the guidance can be interpreted as a fiscal adjustment plan that might produce hard impacts on people’s day-to-day lives, albeit stabilizing the economy. Only time will tell the real results of the new fiscal policies that the European Union encourages its members to implement.