The European Council and the economic governance review

Summary:

The update of the EU's fiscal rules is almost complete – in time to be adopted ahead of the legislative break for the 2024 European elections. There has been a long-standing need to update the EU economic governance framework to make it better suited to the current and future challenges the EU is facing. The existing rules have formed over time since the 1992 Maastricht Treaty. The outbreak of the COVID-19 pandemic in March 2020 saw the activation of the 'general escape clause' in the rules, giving Member States flexibility with their national budgets at a time of crisis. The validity of the clause was extended owing to the start of the war in Ukraine, but it was finally deactivated at the end of 2023. Since the beginning of 2023, the European Council had been calling for work on the economic governance review to be concluded by the end of 2023, so that the new rules could apply from the start of 2024 without transitional arrangements.

The Commission published a package of legislative proposals in April 2023, which upheld the key reference values limiting government decifits to 3 % of gross domestic product (GDP), and debt levels to 60 % of GDP, as defined in the Maastricht Treaty. The Swedish, Spanish and Belgian Presidencies of the Council of the EU have taken the work forward. There have, however, been differences of views on the review process among the EU Member States. Germany, the largest EU Member State by population and one of the EU's key economic engines, has led a more fiscally prudent grouping, with proposals such as quantitative benchmarks and safeguards. The other approach, pushed by countries such as France, has been to stress the need for investment and flexibility. The whole process was not finalised by the end of 2023, as the European Council had requested, but Parliament's Committee on Economic and Monetary Affairs (ECON) and the Council of the EU adopted their respective positions in December 2023, thus enabling interinstitutional negotiations to start in January, once Parliament had confirmed its negotiating mandate. A political agreement was reached in February 2024. The aim is to have the new framework in place before the European elections in June 2024 and to start applying the rules from 2025. The first national plans outlining expenditure, reforms and investment in line with these new rules are expected to be prepared by 20 September 2024. This briefing looks at the process that led to the political agreement on the new rules, and at how the European Council has contributed to it through the guidance given in its conclusions.

This briefing is part of the series European Council in Action.

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