EU member states adopted new rules on Monday governing the amount of public debt an EU country can accumulate and the size of budget deficit permitted.
The new fiscal rules will ensure "sustainable public finances," spur reforms, increase investment and create more employment, Belgian Finance Minister Vincent Van Peteghem announced in a statement.
The looser fiscal rules have two parts. The individual economic condition of each EU country is to be given greater consideration when setting targets to reduce excessive debt and deficits.
At the same time, new fiscal regulations have clear minimum requirements for reducing debt ratios for highly indebted countries in the European Union.
The adoption on Monday was the last necessary step for the long-planned reform of the fiscal regulations after a vote last week in the European Parliament.
The EU legislature and EU countries agreed on the new fiscal rules after long negotiations. Belgium currently holds the EU's rotating presidency and chaired the talks.
While viewed as an essential foundation of stability in the eurozone, the previous fiscal rules were long considered too complicated and strict for monitoring and enforcing debt requirements.
EU countries have now adopted regulations that state the debt level of an EU member state may not exceed 60% of gross domestic product (GDP).
In addition, the general government deficit - namely the gap between income and expenditure of the public budget, which is primarily covered by loans - must be kept below 3% of GDP.
Highly indebted EU countries with debt levels over 90% of GDP are to have to reduce their debt ratio by one percentage point annually, countries with debt levels between 60 and 90% by 0.5 percentage points. Germany in particular had insisted on this condition
Opponents of very strict rules succeeded in ensuring that the European Commission, which is responsible for supervision, can take the increase in interest payments into account when calculating the adjustment efforts during a transitional period.
If EU member states present credible reform and investment plans that improve resilience and growth potential, the debt reduction period can also be extended.
Previously, if the upper limits of the fiscal regime were deemed to be exceeded by an EU country, debt penalty procedures, known as deficit procedures, could be initiated.
An EU member state must then introduce countermeasures to reduce its debt and deficit.
However, as a result of the Covid-19 pandemic and the Russian invasion of Ukraine, these disciplinary proceedings were suspended. In 2020 in particular, budget deficits in almost all EU countries were well above the permitted target of 3% of GDP.
The European statistics agency Eurostat reported that 13 EU countries had a debt ratio higher than 60% of GDP in 2023. Greece was the highest at 161.9%, followed by Italy at 137.3%, France at 110.6%, Spain at 107.7% and Belgium at 105.2%.
The lowest ratios of government debt to GDP were recorded in Estonia at 19.6%, Bulgaria at 23.1%, Luxembourg at 25.7%, Denmark at 29.3%, Sweden at 31.2% and Lithuania at 38.3%.
The new rules enter into force on Tuesday after their publication in the EU Official Journal, a register of EU laws.