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Stability or Stagnation? How Europe’s fiscal rules are strangling growth

The 2024 Stability and Growth Pact reforms entrench austerity and stifle investment—challenging the new EU Commission to reverse Europe’s economic decline. Da Social Europe

Fiscal policies in Eurozone countries have long been shaped by the Stability and Growth Pact (SGP). This framework was conceived as a means to enforce orthodox fiscal rules designed to steer member states towards balanced budgets. Although the SGP was temporarily suspended during the pandemic, it was reintroduced in 2024 with minor, largely superficial, revisions. The recent reforms for instance introduced individualised debt reduction paths with high-debt countries facing debt-to-GDP reductions of at least one percentage point annually on average during the adjustment period.

The core principles of the SGP therefore remain unchanged. The European Commission retains the authority to initiate so-called “excessive deficit procedures” against countries with budget deficits exceeding three percent of GDP. These procedures compel governments to implement austerity measures aimed at gradually reducing deficits, with the ultimate objective of achieving balanced budgets and debt-to-GDP ratios approaching 60 percent.

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