Minister McGrath welcomes progress on EU economic governance framework at ECOFIN

The Minister for Finance Michael McGrath welcomes agreement on Council Conclusions on reform of the EU economic governance framework following discussions at a meeting of the Economic and Financial Affairs Council (ECOFIN) in Brussels today (Tuesday, 14 March).

The reforms aim to strengthen debt sustainability and enhance sustainable and inclusive economic growth through investment and reform.

Since the Treaty of Maastricht of 1992, the EU's economic governance framework has helped to create conditions for economic stability, sustainable economic growth and higher employment. This framework consists of the EU fiscal policy framework (the Stability and Growth Pact, the European Semester, and requirements for national fiscal frameworks), the Macroeconomic Imbalances Procedure, and the framework for macroeconomic financial assistance programmes.

However, while the framework has evolved over time to address certain weaknesses, it has also grown increasingly complex and not all instruments and procedures have stood the test of time.

The Council Conclusions highlight a number of important areas of convergence within the Economic Governance Review discussions so far, establishing areas of agreement and identifying next steps.

Speaking after the ECOFIN meeting today, Minister McGrath said:

“I strongly welcome that my fellow Finance Ministers and I were able to reach agreement on the Council Conclusions regarding the Commission’s proposals for reforms of the EU economic governance framework.

"Although we still have a significant way to go towards a final agreement on the reforms package, today’s agreement on the Council Conclusions is a very positive step forward. Above all, the agreement reflects the commitment among Member States to building a governance framework that promotes fiscal policy coordination among Member States, while promoting sustainable growth and ensuring the soundness of public finances.

"Of course, as we can expect in discussions of this nature, there continue to be diverging views on certain points. It is therefore deeply encouraging that our discussions have been so collaborative and constructive as we move closer to finalising the details of the framework.

"Ireland has always been a strong supporter of the need for an effective set of fiscal rules that promotes stability and resilience in Member States’ public finances and prevents the build-up of unsustainable debt within the monetary union. I have, therefore, welcomed the discussions to date and I see the current Council Conclusions as a significant achievement and key step towards us defining the future of our fiscal framework.”

Notes

The EU’s economic governance framework is a set of common rules for national fiscal and economic policies which apply to all member states. It has been instrumental in safeguarding macroeconomic stability and growth in the Union and has helped member states achieve their economic and fiscal policy goals. These common rules serve to ensure the sustainability of public finances and promote convergence while addressing macroeconomic imbalances.

The economic governance framework is based on:

the Treaty on the functioning of the EU – sets benchmarks for government deficits below 3% of gross domestic product (GDP) and government debt below 60% of GDP
the stability and growth pact – defines the rules for monitoring and coordination of national fiscal and economic policies
the six-pack and two-pack legislations – reinforce fiscal surveillance after the financial crisis and create the macroeconomic imbalance procedure to ensure oversight of imbalances emerging outside the fiscal sphere
code of conduct documents - guidelines to interpret the six-pack and two-pack legislations

The EU is working on a review of the economic governance framework. On 9 November 2022, the Commission released a communication on orientations for a reform. The main novelty concerning fiscal rules in the communication is the introduction of four-year medium-term fiscal structural plans outlining country-specific fiscal adjustment paths, based on one single operational fiscal indicator (currently known as the expenditure benchmark). The Commission would propose such adjustment paths based on a debt sustainability analysis, while member states could request an extension of the initial path against national reforms and investment.

Today, in a spirit of compromise, member states were able to agree a way forward and affirmed their willingness to work together in economic policy. The Council’s agreement on conclusions highlighting areas of convergence of views among member states as well as identifying issues for further work on a reformed framework constitutes an important milestone in the reform of the EU’s common fiscal rules. The conclusions provide an important input for the Commission for its forthcoming legislative proposals.

Further discussions are required to address the remaining issues, in particular the questions outlined under point 7 of the conclusions. Work on these issues will continue among the member states in the coming months, both before and after the release of Commission proposals.