The confederation of states has strict budget requirements that the member states must adhere to. However, many of them are not complying with the regulations, and now these are being reformed. Despite this, the EU’s financial prospects remain bleak due to significant rifts between its member states, particularly in fiscal policy. Some countries advocate for strict budget discipline and live by this principle, while others have national debts that are out of control.
For example, Italy’s debt is 137 percent of GDP, while Sweden’s is only 31 percent. Some small countries have even less debt. EU member states are supposed to adhere to strict debt and budget thresholds, with debt capped at 60 percent of GDP and a budget deficit limit of 3 percent. However, there have been no penalties imposed on countries not meeting these limits, despite 13 of them currently being in violation. The rules have lost credibility.
In response to this crisis, the EU is now reforming the Stability and Growth Pact, with Parliament approving a plan to maintain the 60 percent and 3 percent thresholds. The new approach involves the Commission negotiating with countries that exceed these limits to outline how they can reduce their debt over time to reach the maximum of 60 percent of GDP. However, some are calling for more stringent measures such as criminal proceedings against countries that breach fiscal rules. There is concern about funding sources for ambitious projects like expanding rail transport and adopting greener agriculture without putting additional strain on already struggling finances.
The dilemma facing the EU is how to balance austerity measures with funding for its projects without risking its financial stability further. One proposal is creating a capital markets union but requires trust in member states’ financial stability first.
In conclusion, the EU and its member states face complex financial challenges that require immediate attention from policymakers. Reforming the Stability and Growth Pact will play a crucial role in addressing these challenges while ensuring fiscal discipline remains intact across all member states’ economies.