Reformed Framework Applied for the First Time.

On 21 January, the Economic and Financial Affairs Council (ECOFIN) applied the reformed framework for the economic governance of the EU, which was adopted in April 2024, for the first time. The aim of the new framework is to ensure healthy and sustainable public finances and to promote economic growth within the EU. The member states are obliged to submit medium-term fiscal structural plans covering a period of four to five years. The focus of economic policy management remains on budgetary consolidation. However, what is new here is that the promotion of inclusive and sustainable growth is also being taken into account. Investments and reforms in line with the common European targets can now be included in the medium-term fiscal structural plans.

The Council has defined the medium-term fiscal structural plans as well as the associated fiscal adjustment paths for 21 member states. It also approved the investment and reform commitments submitted by five Member States for inclusive and sustainable growth. This means that the newly introduced extension of the budgetary adjustment period from four to seven years will also be applied. No fiscal adjustment path has yet been defined for Germany, as the announced application to extend the adjustment path could no longer be submitted for adoption due to the break-up of the governing coalition.

Fiscal adjustment paths

Fiscal adjustment paths are part of the national medium-term fiscal structural plans. They are defined by ECOFIN for the next four to seven years and are the central element of budgetary monitoring at European level. The new regulations give the member states more flexibility in determining their medium-term spending paths. However, the monitoring mechanisms have been broadened and the possibility of sanctions being imposed has increased. The aim is to create a balance between economic growth, fiscal sustainability and stability within the EU.

Five countries are implementing the new opportunities

Under the new regulations, a member state can apply for the budgetary adjustments required for fiscal sustainability to be extended to seven years. The member state involved must submit binding investment and reform plans for this purpose. The plans must then be approved by the Council. The Council has already approved these commitments from the five member states, i.e. Finland, France, Ireland, Italy, and Romania.

Recommendations in the event of an excessive deficit

The Council also adopted the recommendations proposed for the excessive deficit procedure. The recommendations made in this regard are also part of the medium-term fiscal structural plans and fiscal adjustment paths. However, they are more binding and are subject to comprehensive monitoring by the EC and the Council. The member states involved are Belgium, France, Italy, Malta, Poland, Romania and Slovakia.