Today, the European Parliament approved an S&D parliamentary report calling for the urgent reform of the European Union’s economic governance architecture. The procyclical policies accentuating economic fluctuations and the very narrow space for fiscal stimulus left by the current Stability and Growth Pact (SGP) have severely hampered the EU’s economic outlook in the past, despite the additional flexibility introduced by the previous Commission. To address this shortcoming, already identified before the pandemic, and in view of the effects of the pandemic, the future the European Parliament has backed S&D proposals to focus on a country-specific debt adjustment approach. This would work by creating an expenditure rule in order to better tailor policies to the economic reality in each country and reflect the degree of debt sustainability for different countries. Moreover, a reformed framework should include considerations for special treatment for sustainable public investments, as well as an incentive-based – rather than a sanction-based – approach. A reformed SGP should place social and environmental policies on an equal footing with fiscal and economic policies. This requires a radical change in the European economic governance framework, building on sustainable development.

Margarida Marques, S&D MEP and author of the parliamentary report, said:

“The Covid-19 pandemic has clearly exposed the flaws of the European Union’s fiscal rules for everyone to see. Due to the procyclicality of the rules and the limited fiscal space, Europe became entrapped in low growth, with low investment rates and net public investment close to zero. Debt and deficit rules have become objectives instead of instruments to boost the economy and make people’s lives better.

“To prepare Europe for the post-pandemic world we must now make the EU’s debt rules simpler and more conducive to long-term economic growth. This also includes a more dynamic notion of debt service costs, allowing for country-specific debt-reduction paths, which take into account EU countries’ specificities and challenges. Instead of a debt brake, which only too often has turned out to be a brake on economic recovery and growth, we should focus on the sustainability of the debt, allowing for different paths to debt reduction and providing conditions to support long-term economic growth, with appropriate investment.

“To save people and the planet, the reformed fiscal rules must have sustainable development at their heart. Social and environmental policies must be coordinated on an equal footing with fiscal and economic policies.

“Now that a large majority of the European Parliament has backed a progressive reform of the EU’s fiscal rules, we call on the Commission to put forward ambitious legislative proposals.”

Jonás Fernández, S&D MEP and spokesperson for economic and monetary affairs, said:

“To master the twin challenges of the digital and green transitions leaving no one behind, we must invest the funds from the recovery programmes in a smart way and step up public investment in the long term. For the past five decades, the EU has seen public investments go down. To counteract this negative trend, the EU needs a permanent fiscal capacity and a golden rule on public investments such as education, health, infrastructure and the fight against the climate emergency. To build bridges to the future we must focus on sustainable investments.

“Now that the Commission has confirmed the extension of the general escape clause until 2023, we have time to rethink and reform the EU’s fiscal framework. Let’s use this time wisely to prepare well for the post-pandemic world. “