The European Parliament and EU member states reached an agreement on the reform of EU budget rules overnight from Friday to Saturday, aimed at guaranteeing the recovery of public finances and, at the same time, preserving investments, reports AFP.

The text, which has been under discussion for more than two years, has been criticized for being too complex and has been described by left-wing MEPs as a tool to impose austerity in Europe.

“I welcome the political agreement on our ambitious reform of the EU’s economic governance,” “for a competitive and fair European economy,” European Commission President Ursula von der Leyen wrote on social network X.

“The new rules will allow EU countries to invest in their strengths, strengthening their public finances,” she added.

Agreement after marathon negotiations

Due to time constraints, the negotiators finally reached an agreement after 16 hours of negotiations.

Given the procedural deadlines, it was important to reach a conclusion so that the text could be voted on in the plenary session in Strasbourg in the spring, before the parliamentary recess that precedes the European Parliament elections in June.

The agreement reached last night will allow member states to apply the new rules from this year to their 2025 budgets.

They will “contribute to the balance and sustainability of public finances, structural reforms, investment promotion, economic growth and job creation in the EU,” said the Belgian Presidency of the EU X Council.

What are the new budget rules in the EU?

The reform aims to modernize the Stability Pact created in the late 1990s, which limits each country’s public deficit to 3% of GDP and public debt to 60%.

These frameworks, which were considered too radical, were never followed and were considered outdated.

While it confirms these representative quotas, the new text makes the adjustments applied to EU countries in the event of excessive deficits slightly more flexible.

In particular, it requires member states to present their own adjustment path to ensure their debt sustainability, giving them more time if they implement reforms and investments.

The assessment will be based on the evolution of spending, an indicator considered more relevant than the deficit, which can fluctuate depending on the level of growth.

Germany and the Scandinavian countries managed to tighten the rules

But Germany and its “austere” allies managed to strengthen the fiscal system with minimal efforts to reduce debt and deficits for all EU countries, despite the reluctance of France and Italy.

These changes partially distorted the draft and greatly complicated the text.

In the run-up to Christmas, EU finance ministers struggled to reach a common position on the reform, which aims to combine fiscal discipline with safeguarding the investments needed for the green transition and defence.

Debtor countries in southern Europe, such as France, have pushed for more flexibility, while the so-called “moderate” countries of northern Europe, grouped together with Germany, have called for more rigidity.

The left and greens are accused of a return to austerity

“The new system of economic management was more than necessary. We have made sure that the new budget rules are well-founded and trustworthy,” said Esther de Lange, Member of the European Parliament (EPP, right), rapporteur of the text.

In the European Parliament, the project is also supported by the Renew liberals and a large majority of the Social Democratic Group (S&D).

However, the Greens and some S&D MEPs flatly rejected it, as did the radical left. These MEPs are condemning a return to austerity after three years of suspending European budget rules in the face of the shock caused by the pandemic and the war in Ukraine.

“We need investment in industry, in defense, in the environmental transition, that’s what is urgent at the moment, it’s not about bringing back absurd rules from an economic point of view,” Aurore Lalucq, economist and MEP told AFP S&D.

She said it was “a political mistake that populists will use to attack Europe.”

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