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European Commission plans to simplify the budget rules of the eurozone

UNITED STATES, WASHINGTON (OBSERVATORY) — Brussels plans to simplify the complicated eurozone budget rules to provide softer debt reduction goals for governments, according to the Financial Times.

Officials are considering ways to rewrite the Stability and Growth Pact, which has been criticized for not being able to enforce it and overly flexible for countries that violate the rules.

The internal document of EU officials, which came to the disposal of the FT, calls for a “significant simplification” of the rules. The paper notes that the Stability and Growth Pact has led to “unreasonable financial positions” and a “pro-cyclical fiscal policy” that place undue restrictions on countries in difficulty.

Proponents of the reform of the pact argue that tensions in world trade and the threat of Brexit without a deal mean that the EU needs clear rules that will promote and not impede the role of fiscal policy. One of the key reforms under consideration is the rethinking of debt targets in order to ensure “reasonable and sustainable debt reduction for the most vulnerable economies.”

According to the current rules, countries with excessive deficits must reduce their debt burden by 1/20 per year for three years in order to approach the target 60% ratio of debt to GDP. Officials privately acknowledged that most countries cannot achieve this goal in the face of a slowing economy and low inflation.

The document notes that the commission will have to proceed with caution, given the “high level of polarization and mistrust between proponents of strict automatic application of the rules and a more balanced approach.”

A number of countries, led by the Netherlands, want the European Commission not to allow “political” discretion when applying budget rules. Others, such as Italy, have criticized the Pact of Stability and Growth as undermining national sovereignty and punishing weak economies.

According to Vesti.Ekonomika , last month Italy avoided the threat of disciplinary measures from the EU, convincing the European Commission that the new measures will help bring the country’s growing debt into line with the budgetary rules of the bloc.

Brussels has been heavily criticized for letting the Italian government escape punishment for failing to meet deficit targets in 2018 and 2019.


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