Revised EU fiscal rules will grant member states greater flexibility to reduce their debt levels through bespoke fiscal adjustment plans, but could also reduce fiscal space for public investment in key policy areas such as defense and the green transition. On Dec. 20, EU finance ministers reached a preliminary agreement to reform the bloc's fiscal rules, collectively known as the Stability and Growth Pact (SGP). The deal will now be followed by inter-institutional negotiations between member states and the European Parliament and require formal approval from both, which is expected before EU elections in June 2024. EU capitals reached a compromise building on a European Commission's original reform proposal to give highly indebted countries more time and flexibility in setting tailored debt reduction plans, but the final deal adds a more stringent enforcement regime to ensure common debt reduction. Under the deal, member states with a deficit-to-GDP ratio that exceeds...
