The European Parliament last month ratified new fiscal rules that the European Council then adopted, claiming the measures will ensure sound and sustainable public finances, while promoting growth – even as civil society groups and unions contend the rules will instead force austerity on many EU member states.
The vote follows a period in which the bloc’s fiscal rules – requiring member states to keep public debt levels below 60 per cent of gross domestic product and budget deficits below 3 per cent – were temporarily suspended during the Covid pandemic.
The new fiscal regime, however, will require EU countries with debt levels above 90 per cent of GDP to reduce it by roughly 1 per cent a year, while countries with a debt burden between 60 per cent and 90 per cent would need to bring the level down by 0.5 per cent a year on average. Countries with a deficit above 3 per cent of GDP would need to lower it to 1.5% during periods of growth, according to the EP.
As of 2023, six EU member states had debt levels above 90 per cent of GDP while 13 states exceeded the 60 per cent threshold, according to Eurostat.
Proponents of the new rules – which, according to the European Parliament, contain “more breathing space,” including “three extra years over the standard four” for implementation – have called them a significant step forward in modernising the EU’s fiscal policy. Co-rapporteur MEP Markus Ferber (EPP) said “the new framework will be simpler, more predictable and more pragmatic.”
But representatives of civil society organisations, trade unions and academics argued in a letter to members of the Council that the new rules “will trigger a wave of cuts to public budgets across Europe,” while stymying climate targets and other social goals.
The fiscal rules will likely require EU member states to find €100 billion in their public budgets by 2027, according to a report published last December by the European Trade Union Confederation (ETUC) and the New Economics Foundation (NEF). As a result, the report found, only three member states – Sweden, Denmark and Ireland – will be able to fund planned programs for social and green investments.
Sebastian Mang, a senior policy and advocacy officer at the NEF and co-author of the report, told The Parliament that the rules “mean that governments will not have the financial firepower to address the most pressing issues facing Europe, such as climate change and deindustrialisation.”
The new fiscal requirements “jeopardise the European Green deal, investments for the EU pillar of social rights, industrial policy, as well as civil servants and regulatory bodies,” Jan-Willem Goudriaan, general secretary of the European Public Services Union (EPSU), said in an e-mail.
Meanwhile, Patricia Velicu, the head of collective bargaining and social policy at the IndustriALL European Trade Union, pointed to “the danger of a growing gap between Western and Eastern Europe.”
More broadly, Velicu said, “if we look at other economies, Europe is tying its hands again for no reason.” She added: “If policymakers don’t want to have a completely deindustrialised EU, [they] will have to concentrate efforts on creating more funding capacities.”
Indeed, across the Atlantic, the US has invested in ambitious public funding programmes to spur the economy in the post-Covid period.
In the US, “industrial policy is really having its day,” Mang said, while arguing that the EU has failed to learn from decades of evidence highlighting the importance of industrial policy programmes.
“In Europe, we want to do industrial policy by deregulating without public conditions,” he argued. “The empirical evidence is so clear: investing in advance in hospitals, innovation, and industrial policy would have meant that the Covid crisis would have had less of an impact on us… all of this was rejected by debt reduction for the sake of debt reduction.”
Meanwhile, the European Parliament passed the legislation with 359 votes in favour, 166 votes against, and 61 abstentions.
The centre-right European People’s Party (EPP), the right-wing European Conservatives and Reformists (ECR) and the centrist Renew Europe groups were near unanimous in their support for the rules, while the centre-left Socialists & Democrats (S&D) group was somewhat split.
Thirty-six MEPs out of the S&D’s 140 parliamentarians either voted against the legislation or abstained, frustrating labour groups.
“We were disappointed that S&D was split on the vote,” Velicu said. “It’s likely that national investments and developments prevented [some S&D MEPs] from voting against the rules.”
MEP Margarida Marques (S&D), a co-rapporteur of the legislation, said in a press release that “these rules provide more room for investment, flexibility for member states to smooth their adjustments, and, for the first time, they ensure a real social dimension.”
Nevertheless, she conceded that the rules would ultimately require a permanent investment tool at the European level to complement them.
For its part, the Left group voted against the measures. In an email, MEP Marc Botenga of the Belgian Labour Party, said: “Europe needs to leave austerity behind and come up with a program of ambitious public investment.”