EU debt rules - Germany must spend less in the future
Germany needs to spend less than previously planned according to EU Commission guidelines in the coming years to adhere to European debt rules. The requirements from Brussels are slightly more generous for the next year than the federal government's financial planning, stated Financial State Secretary Florian Toncar. However, significant consolidation is required by 2026, from the federal government, states, and municipalities collectively. This is based on a communication from the Commission to Berlin from last week, known as the reference paths.
To ensure sound finances, each member state of the European Union must jointly with the EU Commission establish a four-year budget plan. Under certain conditions, such as a commitment to growth-promoting reforms and investments, the plan can be extended. The EU Commission can also temporarily consider the increase in interest payments in the calculation of adjustment efforts.
The German financial plan should be submitted by September
Germany is now preparing a financial plan based on the reference paths and will submit it to the EU Commission, just like all other member states. "This is likely to happen by September," Toncar said. Subsequently, there could still be changes to the expenditure path proposed by the Commission. The budget plans also need to be approved by the Council.
The European debt rules, also known as the Stability and Growth Pact, state that a member state's debt-to-GDP ratio should not exceed 60 percent. Simultaneously, the overall government financing deficit should not exceed three percent of the Gross Domestic Product (GDP). Any member state that exceeds these limits risks a penalty procedure. Last week, the EU Commission initiated a so-called excessive deficit procedure against seven member states, including France and Italy. Germany currently faces no trouble from Brussels.
Criticism of the debt rules continues
There is ongoing criticism of the regulations. During the financial crisis in the 2000s, around 20 states violated these rules. Theoretically, penalties in the billions could be imposed in the event of persistent violations. Critics of the guidelines also argue that they stifle necessary investments, such as those in climate protection.
The financial plan of Germany, based on the reference paths, will be submitted to the EU Commission by September, adhering to the EU's four-year budget plan. Berlin must ensure its debt-to-GDP ratio doesn't exceed 60%, according to the EU Commission's Stability and Growth Pact, or risk a penalty procedure. However, the ongoing criticism suggests that these debt rules may hinder necessary investments, like those in climate protection, where many violations occurred during the financial crisis in the 2000s. Despite these criticisms, Germany, as part of the EU, abides by these rules and is not currently facing trouble from Brussels. By adhering to these rules, Germany hopes for sound finances across Europe and collective growth.
