EU Reforms Set New Standards for Financial Stability but Critics Question Transparency in Monitoring Excessive Debt

The EU Commission will not categorize heavily indebted large EU member states as in need of observation, according to MEP Nils Torvalds. This statement comes after Finnish Prime Minister Petteri Orpo emphasized the importance of avoiding EU monitoring. The European Parliament recently approved the reform of the EU’s financial rules after years of work on the Stability and Growth Pact. Negotiators reached a preliminary agreement in February, which was now approved by the Parliament.

The reform maintains acceptable debt and deficit levels for EU countries but aims to simplify and improve compliance with the rules. Each member country will have a net spending path prepared by the EU Commission based on structural factors. There are different rules for how quickly debt must be reduced based on the debt ratio. If debt exceeds 90 percent of GDP, it must be reduced by one percentage point annually. Countries with 60–90 percent debt ratio have a lower adjustment rate of 0.5 percentage points.

Member countries facing excessive debt or deficits can request a dialogue with the Commission before adjustments are instructed. This allows the country to explain its situation better. However, MEP Nils Torvalds is skeptical about this approach and questions why larger member states seem to evade such scrutiny. He believes that transparency is crucial in maintaining economic stability within the EU and that all member states should adhere to the same standards.

The public debt to GDP ratio was highest in Greece at 166% in the third quarter of 2023. Other countries with high debt ratios include Italy, France, Spain, Belgium, and Portugal. Eero Heinäluoma, leader of the Social Democrats, is pleased with the new financial rules and believes they provide a more realistic and acceptable path for member states to follow. He argues that these rules will help prevent future crises like those experienced by Greece and other countries in recent years.

The Council of Member States still needs to approve the reform for it to take effect, but many believe that it will have a significant impact on economic stability within the EU.

Overall, while some politicians may view monitoring as intrusive or unnecessary, others argue that it is essential for maintaining economic stability within Europe’s vast economy.