New fiscal rules proposed by the European Commission have been denounced as "damaging and short-sighted" by Europe's major trade union, which argued that they will only exacerbate the current economic crisis throughout the EU.
"The risk of a return to austerity has increased today," General Secretary of the European Trade Union Confederation Esther Lynch said on Wednesday. "Most Member States could be forced to make substantial spending cuts from next year in order to meet the new debt and deficit rules. That would mean fewer jobs, lower wages, less public services and higher poverty."
"A reform of the EU's economic rules is long overdue but these proposals fall far short of the change needed to make Europe's economy work for people. Fundamentally, Europe will have rules which risk prioritising cuts and austerity rather than investment and growth," Lynch added.
Simple — or simple-minded?
By far the most controversial of the Commission's proposals is the requirement that from next year, all Member States running deficits greater than 3% of GDP must trim their budgets by 0.5% per year until their budgets fall below the 3% threshold.
In remarks made on Wednesday, Executive Vice-President Valdis Dombrovskis praised the "simplicity" of the scheme, and emphasised that the Commission would not permit any "heel-dragging [or] backloading" by Member States.
"Member States will not be allowed to push back fiscal adjustments to a later date," he said. "This also applies to carrying out required reforms and investments."
He also warned that "countries will face tighter fiscal requirements if they do not carry out the reforms and investments to which they have committed."
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Under the bloc's current rules, Member States are required to maintain debt levels below 60% and deficits under 3% of GDP. Both of these limits were enshrined into European law in the Stability and Growth Pact in the late 1990s, but were temporarily suspended during the Covid-19 pandemic. The suspension was later extended until 2024 because of Russia's full-scale invasion of Ukraine.
Thirteen Member States currently have government debt-to-GDP ratios greater than 60%, including Belgium (105.1%). Last year, eleven EU countries ran deficits higher than 3% of GDP, also including Belgium (3.9%).
Unfortunately, Belgium's deficit levels are unlikely to fall within the EU's budgetary limits by the time the new rules are introduced in 2024. According to a report published earlier this year by the Federal Planning Office, Belgium's fiscal deficit is set to reach 5.7% this year, before falling to 5.4% in 2024.
