Tonight, after several rounds of negotiations, the EU Institutions have reached a final agreement on the reform of the Economic Governance Framework. These are the disastrous EU fiscal rules that have in the past forced Member States to cut their national budgets.

Left MEP José Gusmão (Portugal) said: „The European institutions are once again showing their disconnect with social reality. The Council’s proposal was dominated by Germany’s obsession with punishing indebted countries. As expected, the weak mandate from the EP completely failed to oppose it. The trialogue negotiations resulted in stricter deficit rules, a more restrictive control on member states’ public expenditure, and zero safeguards for public investment. Austerity is back, and we know who signed the deal.“

The frugal countries have influenced the entire process from the beginning, including the Commission’s own proposal. During the trialogue negotiations, the pressure from these countries has become even more evident, particularly Germany’s numerical safeguards on yearly reductions for the public debt ratio and government deficit. The Council has blocked all attempts at compromise with the European Parliament until the last minute, in order to force a “take it or leave it” agreement.

Due to the alignment between the S&D and right-wing groups, the mandate from the European Parliament lacked the ambition to challenge such a frugal Council. This perpetuates the overall problematic design where democracy and public services are completely disregarded.

The new compromise agreement even further promotes the obsession with fiscal consolidation, i.e. austerity by default. But what does this agreement look like in practice? Four main points have been introduced:

1. A “safety margin” for government deficits, meaning a higher budgetary buffer. Now Member States have to go beyond the 3% rule in the EU Treaty and guarantee an additional reduction in structural terms of 1.5% of GDP. To achieve this, an annual reduction of 0.25-0.4% of the structural balance is imposed.

2. A stricter surveillance mechanism to monitor expenditure deviations from Member States, known as the “control account”. In addition to the expenditure agreed upon with the Commission and the Council, countries cannot deviate more than 0.3 or 0.6 percentage points of GDP annually or cumulatively. If they fail, a first warning will be issued. History has shown us how sanctions have been used to push Member States to pursue a neoliberal agenda.

3. At the last minute, the Council agreed to exclude the co-financing of EU-funded programs from a government’s expenditure. This positive step is overshadowed by the deletion of a derogation for public investment from the control account, as timidly requested by the EP. This was the final tangible evidence that the EU was serious about its ambition for public investment.

4. A Debt Sustainability Safeguard: depending on the level of their public debt-to-GDP ratio, Member States have to commit to an average annual reduction in debt of 0.5 or 1 percentage point of GDP over a period of 4 to 7 years, instead of the up to 17 proposed by the European Parliament.

The European Union is still trying to recover from a multitude of crises, including the energy and cost of living crisis. Instead of promoting investment in decent public services and the green transition, and fostering resilient and sustainable growth, we will be facing more indiscriminate budgetary cuts, paving the way for a new social and economic crisis.