EU Commission proposes longer, negotiated debt reduction paths for EU countries

The European Commission proposed on Wednesday to change the EU's fiscal rules so that governments would negotiate individual debt reduction paths of a length linked to reforms and investments, despite scepticism from some members including Germany.

The change, which moves away from the current one-size-fits-all obligation of annual debt cuts of 1/20th of the excess above 60% of GDP, is meant to make governments "own" their debt plans, rather than see them as externally imposed by Brussels.

But some EU capitals, notably Berlin, fear that longer and individually negotiated debt reduction paths would encourage governments to postpone difficult decisions to near the end of the time frame or even until after their mandates expire.

The changes are needed because a surge in public debt in European Union countries resulting from measures to support households and businesses through COVID-19 has left existing debt reduction requirements looking unrealistically ambitious.

"EU countries now face significantly higher debt and deficit levels that vary widely," Commission Vice President Valdis Dombrovskis told a news conference.

"New challenges such as the green and digital transitions and energy supply issues will require us to make major reforms and investments for years to come."

Another key change proposed by the executive Commission is to focus the rules on net primary spending - government expenditure that excludes debt interest - which is directly observable during the year and under government control.

That would address governments' long-standing complaints that the current rules focus on a country's structural deficit - a complex, calculated indicator that is not directly observable and prone to strong revisions.

"Fiscal rules would focus on reducing debt where it is high, based on Member States' own plans that must respect clear EU conditions. Once the plan is agreed, monitoring will be based on a simple expenditure rule, while stronger enforcement measures will ensure compliance," Dombrovskis said.