The European Union (EU) has agreed on common rules for budget deficits and national debt, taking into account the current economic situation. These rules will be tailored to the individual circumstances of EU countries, with clear minimum requirements for reducing debt ratios among highly indebted nations provided.
The EU has a longstanding rule that states that a member state’s debt level must not exceed 60% of their economic output. Additionally, the general government financing deficit must be kept to a minimum of 3% of the respective gross domestic product (GDP). However, due to the Corona crisis and the Russian attack on Ukraine, these requirements have been temporarily suspended. If a state violates the 3% deficit limit, they will face an annual fine of at least 0.5% of GDP.
This agreement was based on reform proposals from the EU Commission. Critics argue that these reforms weaken the so-called Stability Pact too much. The reform needs to be confirmed by the EU Council of Ministers and the plenary session of the European Parliament before it can take effect. Typically, this is a formality.