Reaction: European Commission proposes approach to fiscal rules review

The European Commission has today issued an orientation paper setting the direction for the review of the European economic governance framework, including the European fiscal rules – the Stability and Growth Pact (SGP). The goal of the fiscal rules is to ensure the stability of the Economic and Monetary Union through the coordination and surveillance of the fiscal policies across EU Member States.

Over the years, the existing EU fiscal framework has become too complex and today, it is no longer fit for purpose and requires fundamental upgrades. Current debt-reduction rules are too restrictive and thus unrealistic. Over-reliance on arbitrary numerical debt and deficit limits incentivises undifferentiated reduction of public spending without sufficient regard for quality or the needs of the euro area. A preoccupation with short-term debt figures is stifling essential long-term investment.

Today’s orientation paper from the European Commission marks a positive step forward in building a fiscal framework that delivers for both society and the planet. Finance Watch welcomes the proposal, but sees a need for more ambitious reforms to address the growing economic, environmental and societal challenges:


Finance Watch supports the return to country-specific debt pathways by scrapping the one-size-fits-all “1/20th” debt reduction rule. Adopted in 2011, this rule requires Member States to reduce debt in excess of 60% of their GDP by 5% per year. With the euro area heading towards an average of 100% debt-to-GDP but with no debt sustainability risk, applying such a rule would force many Member States into excessive public spending cuts or tax increases. This would dampen EU growth and employment in difficult times.

However, Finance Watch regrets the lack of willingness to get rid of arbitrary fiscal limits, namely the 3% deficit and 60% debt-to-GDP thresholds. These limits lack economic justification and have led to undifferentiated reduction of public spending in the past. We are disappointed that the arbitrary 3% deficit limit is still the cornerstone of the framework, whatever the debt situation. This restricts debt investment, especially for countries with “substantial public debt challenge” facing more stringent country-specific debt pathways. Whilst logical at first sight, it might mean countries in difficulty will have less leeway to do the public investment and reforms needed to grow out of debt.

Having said that, Finance Watch is glad to see the 60% debt-to-GDP becoming a long-term debt anchor, rather than a short-term debt limit, as well as the inclusion of debt sustainability analyses (DSA) with country-specific factors as a basis to build country-specific debt pathways.


We welcome the proposed move towards national medium-term fiscal-structural plans that will connect country-specific debt pathways and their duration, with commitments to growth-enhancing reforms and investments over a period of 4 to 7 years. The Commission recognised that “reforms and investments can have a positive impact on fiscal sustainability”. Drawing on the spirit and design of the National Recovery and Resilience Plans (NRRPs) that Member States submitted to access to the EU’s pandemic recovery fund, the impact of such reform will depend on the details.

Finance Watch welcomes a common EU assessment framework that supports investment and reforms in national plans to encourage debt sustainability, address EU environmental, social and economic priorities and country specific challenges.

Having said that, Finance Watch is concerned by the lack of mention of the do-no-significant-harm principle as an assessment criteria for these multiannual plans – similar to the NRRPs. This is important to ensure their implementation actually leads to improvements in the long-term sustainability and resilience of EU economies. We urge the European Commission and the Member States to come to an agreement on including this fundamental principle.


The cost of failing to invest now in societal resilience and sustainability will weigh more on the shoulders of future generations than the cost of debt resulting from investments made today.

Finance Watch strongly regrets the absence of preferential treatment for future-oriented public spending. The European Commission has not taken on board the idea – supported by euro area heavy-weights such as France and Italy – to exempt future-oriented spending, such as green investment, from debt and deficit limits. With an EU environmental funding gap estimated at €520 billion per year, this lack of differentiation between types of debt is problematic. As the arbitrary deficit limit of 3% is maintained, this will prevent most Member States from sufficiently debt investing in building stronger and greener economies that would benefit future generations.

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

Financial markets don’t care so much about a country’s deficit or debt-to-GDP ratio – they care about the strength, stability and growth prospects of its economy. The EU economic governance should therefore strive to strengthen EU economies by exempting future-oriented public spending.

European fiscal and economic policies must enable a sustainable and just transition. While there are many positives in the European Commission’s announcement today, this marks just the beginning of the reform process for the EU fiscal rules. As such, it will be important for European civil society to join forces to push for much needed change. On 17 October, Fiscal Matters, a coalition bringing together unions, civil society organisations, think tanks and academics sent an open letter to EU policymakers with 180 signatories calling for the urgent and democratic reform of the fiscal framework.

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Notes to Editors

For further details on the changes to the fiscal rules being advocated for by Finance Watch, please read “Breaking The Stalemate: Upgrading EU economic governance for the challenges ahead”. For an introduction on the European fiscal framework, please read “One framework to rule them all“. For a deeper dive in the three pillars of the European economic governance framework, find our guide “Navigating the Maze”.

Ludovic Suttor-Sorel, Research and Advocacy Officer at Finance Watch 

As Research and Advocacy Officer, Ludovic works on fiscal policy, sustainable finance, natural capital and the nexus between biodiversity and finance. Prior to joining Finance Watch, Ludovic was a researcher in applied economics at the Solvay Brussels Schools of Economics and Management (ULB), where he worked on public finance, environmental policy, public incentives and developed a keen interest in industrial policy. Earlier in his career, he was a political advisor for the top management of one of Brussels’ welfare institutions. He first developed an interest in financial and banking regulation while working for a Belgian senator on reform of the Belgian banking structure. He holds a B.A. in Political Sciences and an M.A. in European Studies from the Institute for European Studies of the Free University of Brussels (ULB).

To arrange an interview with Ludovic Suttor-Sorel, Research and Advocacy Officer at Finance Watch, please contact Alison Burns at or call on [+32471577233]

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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