European Commission proposes reform of European economic governance framework

On 26 April in Brussels, the European Commission formally laid out its proposal for reforming the EU economic governance framework, including the fiscal rules.

Finance Watch, the pan-European NGO advocating to make finance serve society, finds the Commission proposal balanced and believes significant progress can be made in the details over the coming months. However, Finance Watch is disappointed to see arbitrary numerical limits have been retained and is sceptical about whether the new rules can bridge the EU’s funding gap.

Ludovic Suttor-Sorel, Senior Research & Advocacy Officer at Finance Watch said:

“There are many positives in the Commission’s proposal and overall, it’s a step in the right direction. But I am disappointed that EU countries will still face arbitrary expenditure and deficit limits to reach arbitrary debt targets. Debt sustainability requires more than reaching any debt-to-GDP ratio, and financial markets know it.”

Today’s proposal follows two years of debate, an orientation paper in November 2022, and a common position from EU finance ministers in March 2023. Finance Watch will be following the next steps of the legislative process closely, and is set to release a new report exploring the interaction between European financial markets, public debt and fiscal rules in the coming months.

Additional details:

  • Finance Watch welcomes the Commission proposal to reintroduce country-specific debt pathways. Based on debt sustainability analyses (DSA), this forward-looking approach is a positive step away from the one-size-fits-all 1/20th debt reduction rule.
  • It supports the move towards national medium-term fiscal-structural plans connecting country-specific debt pathways and their duration with commitments for reforms and investments that improve debt sustainability and align with EU priorities.
  • However, Finance Watch is disappointed that arbitrary numerical limits, in particular the 3% deficit limit, will continue to act as a constraint  for many Member States to debt-finance necessary quality investment. The core arguments for these limits – that debt burdens future generations and financial markets react negatively to high debt – are fundamentally flawed.
    • First, if public finance is not mobilised to address the EU’s most pressing challenges, including the climate crisis, it will be future generations who suffer the consequences. Future generations stand to benefit from quality spending and investment made today and should share the cost.
    • Second, financial markets and rating agencies care more about the strength and resilience of a country’s economy and institutions than its debt stock. When assessing sovereign credit risks, markets care more about debt affordability (which in Europe is high by historical standard), debt dynamics and the build-up of fiscal risks. Overall, policymakers should recognise that quality investment and reforms matters more than debt stock reduction.

To arrange an interview with Ludovic Suttor-Sorel, Senior Research & Advocacy Officer at Finance Watch, please contact Alison Burns at or call on +32 (0)471577233

About Finance Watch

Finance Watch is an independently funded public interest association dedicated to making finance work for the good of society. Its mission is to strengthen the voice of society in the reform of financial regulation by conducting advocacy and presenting public interest arguments to lawmakers and the public. Finance Watch’s members include consumer groups, housing associations, trade unions, NGOs, financial experts, academics and other civil society groups that collectively represent a large number of European citizens. Finance Watch’s founding principles state that finance is essential for society in bringing capital to productive use in a transparent and sustainable manner, but that the legitimate pursuit of private interests by the financial industry should not be conducted to the detriment of society.


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