Reforming the EU's fiscal rules: Preparing for a new round of austerity?

The European Parliament and the Council of the EU reached an agreement on the reform of the EU's fiscal rules in February 2024 and formally adopted them in April.

As is well known, the EU's fiscal rules are guidelines designed to ensure that countries within the Union maintain "sound" public finances. These rules prevent excessive government deficits and debt, which in turn should promote economic stability and prevent financial crises.

The European Commission proposed a reform of these rules in April 2023 to update them and address a number of shortcomings highlighted during the previous crisis, including the 2008-2010 debt crisis and the COVID-19 pandemic. In the words of the Commission, the reform should result in a simpler, more transparent and effective governance framework "allowing for reform and investment while reducing high public debt ratios in a realistic, gradual and sustainable manner".

Among the main new features of the reform is an extension of the "adjustment period" for Member States to put their public finances back on a sound path: Member States that commit themselves to certain investments and reforms will now have seven years instead of four to "get back on track". The new indicator used to assess Member States' compliance with their budgetary commitments will be their net public expenditure, rather than their budget balance (revenue minus expenditure). Finally, the new package also provides for a stricter enforcement regime.

Workers' organisations have expressed concerns about this reform from the outset, with the ETUC pointing out that the new rules would "allow the return of austerity and prevent climate action". Unions calculated that member states would have to cut spending by at least €45 billion from 2024, a sum that would pay for more than 1 million nurses or 1.5 million teachers. 

The agreement reached between the Parliament and the Council in February 2024 doesn’t seem to have convinced workers’ organisations. Indeed, in an open letter published in April 2024 the most representative trade unions organisations from Belgium, Spain, France and Italy called on the MEPs to reject the text. The reform was nonetheless eventually adopted by the European Parliament and the Council a couple of weeks later.