– The European Commission is likely to propose on Wednesday that EU governments set their own deficit-cutting goals when they prepare draft budgets for 2024, pushing ahead with its idea of country-specific debt reduction paths, an EU official said.

The Commission, the EU‘s executive arm, will publish on Wednesday its fiscal guidance for next year for the EU, to help coordinate the 27-nation bloc’s budget policies as the European Central Bank is trying to bring down record high inflation.

Until the outbreak of the COVID-19 pandemic in 2020, EU governments had to follow a common set of fiscal rules which call on all governments to cut debt by 1/20th of the excess over 60% of GDP every year and keep budget deficits below 3% of GDP.

But the rules were suspended during the pandemic and then again in 2022 because of the economic shock caused by the Russian invasion of Ukraine. The large differences in debt levels between countries now make a uniform application of the common rules across the bloc unrealistic.

Still, the one-size-fits-all debt reduction rules are to come back into force in 2024. But before they do, EU governments want them changed so that they better reflect the challenges of high public debt and need for investment that the COVID-19 pandemic and fighting climate change have created.

Despite some objections to the Commission idea of individual debt reduction paths from Germany, the EU executive arm is likely to propose that governments set their own targets for now, until a negotiated solution is reached later this year, one EU official close to the topic said.

EU Member States are to set their own fiscal targets that comply with the fiscal adjustment criteria set out in the Commission reform proposal, ensuring that the public debt ratio is on a downward path or that it remains at a prudent level and that the deficit is below 3% of GDP over the medium term,” the official said.

The Commission guidance will also apply to the so-called stability and convergence programs that EU countries have to submit to the Commission every April, in which they lay out fiscal plans for the next 3 years. – Reuters