Brussels (EFE).- The European Commission will demand from the most indebted countries constant reductions in their public deficit and debt ratios and provides fines every six months and cumulative for those who fail to comply with the adjustment path agreed with Brussels.
The proposal to reform the fiscal discipline rules presented this Wednesday by the Community Executive will, however, give more flexibility to the Member States to design their rate of cut in public debt, since each government will agree with the Commission on a four-year fiscal plan years, extendable to seven under certain conditions.
Fines equivalent to 0.05% of GDP
In cases of non-compliance with the fiscal path agreed with the community authorities, the European Commission would open a file for excessive deficit that would allow it, ultimately, to impose fines equivalent to 0.05% of the Member State’s GDP every six months.
This sanction would grow each semester up to a maximum of 0.5% of GDP unless the rest of the community partners certify that the defaulting country “has adopted effective actions” to bridle its deficit and its debt.
Potential fines for Spain
With the data at the end of 2022, these figures result in potential fines for Spain each semester of approximately 660 million euros and a maximum of 6,600 million in the event that it persists in non-compliance and does not adopt tax adjustments.
“Our proposals allow for more credible accountability as a counterpart to a supervision framework that gives Member States more flexibility to design their fiscal trajectories,” the Commissioner for the Economy explained at a press conference in relation to the sanctions chapters. Paolo Gentiloni.
These four-year plans, based on technical criteria proposed by the Commission and which will have to be endorsed by the rest of the community partners, will establish a fiscal path based on the growth of public spending that should ensure that within that period the countries whose debt exceeds the ceiling of 60% of GDP reduces it in a “plausible” way or takes it to “prudent” levels.
The public deficit, for its part, will have to fall to 3% of GDP, a threshold that does not change with respect to the current Stability and Growth Pact, suspended since the start of the pandemic.
To these measures, advanced in the guidelines published since November by the Commission, the Community Executive has added a series of safeguards after listening to the opinions of the Member States, including Germany, which had requested to set an annual numerical cut to ensure the correction of the detours.
Among these, all countries with a deficit of more than 3% of GDP will have to reduce it by 0.5% of GDP each year, an obligation that until now only applied to those who had a file open for excessive deficit.
Objective, to ensure that they do not delay fiscal adjustments
The objective is to ensure that countries do not delay fiscal adjustments, but at the same time avoid adjustments “so large that they are counterproductive”, according to community sources.
Berlin had suggested requiring an annual debt reduction of 1% of GDP.
The rest of the safeguards go in the same direction, which will require that at the end of the plan period the debt must be lower than at the beginning, that the increase in public spending without counting unemployment benefits and interest on the debt remains below growth in the medium term; and that the fiscal adjustment cannot be delayed if the trajectory is extended to seven years.
The Commission may open a file for excess deficit, also based on public debt when a State fails to comply with the agreed path and “by default” to those States that have “substantial debt challenges”.