After COVID, The EU Is Rethinking Its Budget Rules For A New Era

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The European Union will begin revising its rules for government finances on Tuesday to reflect the post-pandemic realities of increased public debt and the enormous expenses of transition to a zero-emissions industry.

The EU has been a cause of frequent disagreements among its members. During the historical review, which is expected to go until the end of the forecast period at the very least, governments, economists, and academics will discuss how to simplify that this so Growth and Stability Pact, which has become so complicated that only a small number of people comprehend it thoroughly.

After COVID, The EU Is Rethinking Its Budget Rules For A New Era

This document, which started out as two laws and a resolution totaling around 12 pages in 1997, has grown many times over the years.

It is supported by a 108-page user guide, which is revised annually by the Eu Parliament.

After COVID, The EU Is Rethinking Its Budget Rules For A New Era

Since the eurozone has a single money supply underpinning its exchange rate, the main goal of the Pact is to safeguard the value of the euro by restricting government borrowing.

This is because each of the 19 eurozone countries has its own budget policy, whereas the eurozone has a single money supply underpinning its currency. Over the years, it has been the subject of many disagreements. In 2002, then-European Commission President Romano Prodi described the Pact as “dumb,” He continues to hold that position today.”It caused me a lot of difficulties at the moment, but later on, most people agreed that I was correct since they saw that the Pact didn’t function in tough times,” Prodi told Reuters in an interview. “I don’t believe I was in error.” 

Until now, the Pact has been modified three times: in 2005, when France and Germany refused to recognize that the rules applied to them, and again in 2011 and 2013, amid the debt crisis, in order to reassure financial markets that investment in the euro was safe to make. As with previous crises, the changes currently being debated are a response to one, this time one caused by the COVID-19 pandemic, which had increased average debt inside the eurozone to approximately 100 percent of national output, up from 60-70 percent in the early 1990s, when the rules were drafted. Currently, yearly debt reductions are needed by existing standards, but they are simply unaffordable for nations with debts that are 160 percent of Gross Domestic Product or more, such as Italy, or more than 200 percent, such as Greece.

“It made sense whenever the Maastricht Treaty was written, but it doesn’t make sense today,” said Klaus Regling, the director of the eurozone bailout package and a former director of the European Commission’s economic department. As Regling said, “governments’ debt-carrying capacity is greater now than what was anticipated in the Maastricht Treaty. Therefore these are factors that need to be considered.”

However, although many finance ministers feel that debt reduction criteria are too stringent in the post-pandemic environment, there is no consensus on whether they can be addressed via interpretation of current legislation or solely through more complex revisions to legal provisions.