EU Reform: Unlocking the Finances of Highly Indebted Member States

EU member states with high levels of debt have expressed concern about being categorized as in need of observation by the European Commission. This is according to statements made by Finnish Prime Minister Petteri Orpo, who emphasizes the importance of avoiding EU monitoring. However, MEP Nils Torvalds believes that the EU Commission will not risk categorizing heavily indebted large member states as in need of observation.

The recent reform of the EU’s financial rules has aimed to simplify and improve compliance with the rules, while maintaining acceptable debt and deficit levels for EU countries. Each member country will have a net spending path prepared by the EU Commission based on structural factors, and there are different rules for how quickly debt must be reduced based on the debt ratio. If debt exceeds 90 percent of GDP, it must be reduced by one percentage point annually. Countries with a 60-90 percent debt ratio have a lower adjustment rate of 0.5 percentage points.

Member countries facing excessive debt or deficits can request a dialogue with the Commission before adjustments are instructed, allowing them to explain their situation better. However, this approach has been criticized by some members of Parliament who question why larger member states seem to evade such scrutiny.

The public debt to GDP ratio was highest in Greece at 166 percent in the third quarter of 2023. Other countries with high debt ratios include Italy, France, Spain, Belgium, and Portugal. Eero Heinäluoma, leader of the Social Democrats, is pleased with the new financial rules and believes they provide a more realistic and acceptable path for member states to follow.

The Council of Member States still needs to approve the reform for it to take effect