Changes from plenary report to adopted text

(22) Provisions related to the United Kingdom should be deleted.

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Changed(23) This Regulation is part of a package together with Regulation (EU) [on the preventive arm] and Directive (EU) […] amending 2011/85/EU on requirements for budgetary frameworks of the Member States. Together, they establish a reformed Union economic governance framework that incorporates into Union law the substance of Title III ‘Fiscal Compact’ of the Treaty on Stability, Coordination and Governance (TSCG) in the Economic and Monetary Union, in accordance with Article 16 thereof. By building on the experience with the implementation of the TSCG by the Member States, the proposed legislative package retains the Fiscal Compact’s medium-term orientation as a tool to achieve budgetary discipline and growth promotion. The package includes a strengthened country-specific dimension aimed at enhancing national ownership, including by means of amaintaining strongerthe role forof independent fiscal institutions, which draws on the Fiscal Compact’s common principles proposed by the Commission in accordance with Article 3(2) of the TSCG. The analysis of expenditure net of discretionary revenue measures for the overall assessment of compliance required by the Fiscal Compact is set out in Regulation (EU) [on the preventive arm]. As in the Fiscal Compact, temporary deviations from the medium-term plan are allowed only in exceptional circumstances in accordance with Articles 24 and 25 in Regulation (EU) [on the preventive arm].arm] Similarly,and in line with the provisions on the control account. In a similar vein to the Fiscal Compact, in case of significant deviations from the medium-term plan, measures should be implemented to correct the deviations over a defined period of time. The package strengthens fiscal surveillance and enforcement procedures to deliver on the commitment of promoting sound and sustainable public finances and sustainable and inclusive growth. The economic governance framework reform, thus, retains the fundamental objectives of budgetary discipline and debt sustainability set out in the TSCG.

(24) Transitional provisions are needed for Member States that are under an EDP when the reformed framework enters into force. Recommendations under Article 126(7) TFEU and notices under Article 126(9) TFEU that have been adopted prior to the entry into force of this amending Regulation need to be revised in order to align them to the provisions of amended Article 3(4) and Article 5(1). This would allow the Council to set a corrective net expenditure path consistent with the new provisions for Member States that have taken action, without stepping up the excessive deficit procedure.

Change 14

Added(24a) Whereas the rules of the deficit-based Excessive Deficit Procedure remain unchanged with a minimum annual structural improvement of at least 0,5% of GDP as a benchmark, against the backdrop of the significantly changed interest rate environment, the Commission may, for a transitory period in 2025, 2026 and 2027 – in order not to compromise the positive effects of the Recovery and Resilience Facility – adjust the benchmark to take into account the increase in interest payments when setting the proposed corrective path relating to the first medium-term fiscal-structural plan for the years 2025, 2026 and 2027 within the Excessive Deficit Procedure, provided the Member State concerned fulfils the conditions laid out in Article 11 paragraph (c) of Regulation (EU) on the preventive arm, consistent with the objective of achieving a green and digital transition and the build-up of defense capabilities.

(25) Regulation (EC) No 1467/97 should therefore be amended accordingly,

HAS ADOPTED THIS REGULATION:

Change 15

AddedArticle 1

Regulation (EC) No 1467/97 is amended as follows:

(1) Articles 1 and 2 are replaced by the following:

‘Article 1

Change 16

Changed1. This Regulation lays down the provisions for speeding up and clarifying the implementation of the excessive deficit procedure. The objective of the excessive deficit procedure is to deter excessive government deficits and, if they occur, to further prompt their correction, where compliance with the budgetary discipline is examined on the basis of the government deficit and government debt criteria.

Change 17

Removed2. For the purposes of this Regulation, the following definitions apply:

Added2. For the purposes of this Regulation, ‘participating Member States’ means those Member States whose currency is the euro. The definitions under Article 2 of the Regulation (EU) [on the preventive arm] apply.

Removed(a) ‘participating Member States’ means those Member States whose currency is the euro;

AddedArticle 2

Change 18

Changed(b)1. ‘netThe expenditure’excess meansof the government expendituredeficit netover ofthe interestreference expenditure,value discretionaryshall revenuebe measuresconsidered andexceptional, otherin budgetaryaccordance variableswith outsideArticle the126(2), controlsecond indent, point (a), of the government, expenditureTreaty on programmesthe Functioning of the European Union fully(TFEU), matchedif byit Unionresults fundsfrom revenue,the nationalexistence expenditureof ona co-financingsevere ofeconomic programmesdownturn fundedin bythe euro area or the Union cap withas a limit ofwhole 0.25%established ofby GDP,the cyclicalCouncil elementsin ofaccordance unemployedwith benefitArticle expenditure,24 andof costsRegulation related(EU) to[on the borrowing ofpreventive fundsarm] foror thefrom loansexceptional relatedcircumstances tooutside the national Recoverycontrol andof Resiliencethe Facilitygovernment Plans,with asa definedmajor inimpact Articleon 2,the pointpublic (2)finances of Regulationthe (EU)Member ofState theconcerned, Europeanin Parliamentaccordance andwith Article 25 of theRegulation Council(EU) [on the preventive arm]*;arm].

Change 19

Removed(c) ‘reference trajectory’ means for each Member State with public debt above the 60% of gross domestic product (GDP) reference value or government deficit above the 3% of GDP reference value, the net expenditure trajectory put forward by the Commission, following an optional presentation of a proposal by each Member State concerned and the dialogue referred to in Article 7(1a) of Regulation (EU) [on the preventive arm];

Removed(d) ‘net expenditure path’ means the multi-annual trajectory for net expenditure of a Member State as set by the Council in accordance with Regulation (EU) [on the preventive arm];

Removed(e) ‘control account’ means a record of a Member State’s cumulated deviations of the actual net expenditure from the net expenditure path.

Removed1. The excess of a government deficit over the reference value shall be considered exceptional, in accordance with Article 126(2), second indent, point (a), of the Treaty on the Functioning of the European Union (TFEU), where the Council has established the existence of a severe economic downturn in the euro area or the Union as a whole in accordance with Article 24 of Regulation (EU) [on the preventive arm] or of exceptional circumstances outside the control of the government with a major impact on the public finances of the Member State concerned, in accordance with Article 25 of Regulation (EU) [on the preventive arm].

In addition, the excess over the reference value shall be considered temporary where budgetary forecasts as provided by the Commission indicate that the deficit will fall below the reference value following the end of the severe economic downturn or the exceptional circumstances referred to in the first subparagraph.

Change 20

Changed1a. When it exceeds the reference value, the ratio of the government debt to gross domestic product (GDP)GDP shall be considered sufficiently diminishing and approaching the reference value at a satisfactory pace in accordance with Article 126(2), point (b), TFEU if the Member State concerned respects its net expenditure path.

Change 21

Removed2. The Commission and the Council, when assessing and deciding upon the existence of an excessive deficit in accordance with Article 126(3) to (6) TFEU, may consider an excess over the reference value resulting from a severe economic downturn as exceptional in the sense of Article 126(2), second indent, point (a), TFEU where the Council establishes the existence of exceptional circumstances in accordance with Article 25 of Regulation (EU) [on the preventive arm].

Added2. The Commission shall prepare a report in accordance with Article 126(3) TFEU when the ratio of the government debt to GDP exceeds the reference value, the budgetary position is not close to balance or in surplus and when the deviations recorded in the control account of the Member State either exceed:

Removed3. The Commission, when preparing a report under Article 126(3) TFEU, shall take into account as a key relevant factor the degree of debt challenges in the Member State concerned. In particular, where the Member State faces substantial public debt challenges according to the most recent Debt Sustainability Monitor, it shall be considered a key factor leading to the opening of an excessive deficit procedure as a rule.

Added(a) 0,3 percentage points of GDP annually, or

RemovedThe Commission shall also take into account as a relevant factor the delivery and commitment by the Member State on the implementation of the investments and reforms to address the common priorities of the Union referred to in Article 12, point (ba), of Regulation (EU) [on the preventive arm], the reforms and investments committed in the national plans of the Recovery and Resilience Facility, Cohesion Funds and any future Union investment instruments that serve the same purpose, as well as all other relevant factors as indicated in Article 126(3) TFEU, in so far as they significantly affect the assessment of compliance with the deficit and debt criteria by the Member State concerned.

Added(b) 0,6 percentage points of GDP cumulatively.

Added3. The Commission, when preparing a report under Article 126(3) TFEU, shall take into account all relevant factors as indicated in that Article, in so far as they significantly affect the assessment of compliance with the deficit and debt criteria by the Member State concerned.

The report shall reflect, as appropriate:

Change 22

Removed(a) the developments in the medium-term economic position, in particular inflation developments and cyclical developments compared to the assumptions underlying the net expenditure path;

Added(a) the degree of public debt challenges based on the methodology referred to in Article 8 of Regulation [on the preventive arm], the evolution of the government debt position and its financing, and the related risk factors, in particular the maturity structure, the currency denomination of the debt and contingent liabilities, including any implicit liabilities related to ageing and private debt;

Change 23

Changed(b) the developments in the medium-term budgetary positions, including, in particular, the size of the actual deviation from the net expenditure path, in annual and cumulative terms as measured by the control account, and the extent to which the deviation is due to a severe economic downturn in the euro area or in the Union as a whole or to exceptional circumstances outside the control of the government with a major impact on the public finances of the Member State concerned in accordance with Articles 24 and 25 of Regulation (EU) [on the preventive arm]. Where relevant, the deviation compared to the reference trajectory shall also be taken into account when considering the size of the deviation;account;

Change 24

Removed(c) the evolution of the government debt position and its financing, and the related risk factors, in particular the maturity structure, the currency denomination of the debt and contingent liabilities;

Added(c) the developments in the medium-term economic position, including potential growth, inflation developments and cyclical developments compared to the assumptions underlying the net expenditure path;

Change 25

Changed(d) the progress in the implementation of reforms and investmentsinvestments, including,including in particular policies to prevent and correct excessive macroeconomic imbalances and policies to implement the common growth and employment strategy of the UnionUnion, including those supported by NextGenerationEU, and the overall quality of public finances, in particular the effectiveness of national budgetary frameworks.frameworks;

Change 26

RemovedThe Commission shall give due and express consideration to any other factors which, in the opinion of the Member State concerned, are relevant in order to comprehensively assess compliance with deficit and debt criteria and which the Member State has put forward to the Council and the Commission. In that context, particular consideration shall be given to financial contributions to fostering international solidarity and achieving the policy goals of the Union. The opinion submitted to the Commission by the Member State concerned shall include the opinion of its national independent fiscal institution on relevant factors.

Added(da) the increase of government investment in defence, where applicable, considering also the time of recording of military equipment expenditure.

Removed4. The Council and the Commission shall make a balanced overall assessment of all the relevant factors, specifically, the extent to which they affect the assessment of compliance with the deficit and/or the debt criteria as aggravating or mitigating factors.

Added4. The Commission shall give due and express consideration to any other factors which, in the opinion of the Member State concerned, are relevant in order to comprehensively assess compliance with the deficit and debt criteria and which the Member State has put forward to the Council and the Commission. In that context, particular consideration shall be given to financial contributions to fostering international solidarity and achieving the common priorities of the Union referred to in Regulation (EU) [on the preventive arm].

AddedThe Council and the Commission shall make a balanced overall assessment of all the relevant factors, specifically, the extent to which they affect the assessment of compliance with the deficit and/or the debt criteria as aggravating or mitigating factors. Where the Member State faces substantial public debt challenges as referred to in paragraph 3(a), it shall be considered a key aggravating factor. Favourable cyclical economic, budgetary and financial developments shall not be considered as mitigating factors, while unfavourable developments may be considered as mitigating factors.

When assessing compliance on the basis of the deficit criterion, if the ratio of the government debt to GDP exceeds the reference value, those factors shall be taken into account in the steps leading to the decision on the existence of an excessive deficit provided for in Article 126(4), (5) and (6) TFEU only if the double condition of the overarching principle — that, before these relevant factors are taken into account, the general government deficit remains close to the reference value and its excess over the reference value is temporary — is fully met.

However, those factors shall be taken into account in the steps leading to the decision on the existence of an excessive deficit when assessing compliance on the basis of the debt criterion.

Change 27

Changed5. Where Member States are allowed to deviate from their net expenditure path in the event of a severe economic downturn in the euro area or in the Union as a whole pursuant to Article 24 and Article 25 of Regulation (EU) [on the preventive arm], the Commission and the Council, in their assessment, may decide not to conclude on the existence of an excessive deficit.

6. If the Council, acting under Article 126(6) TFEU, decides that an excessive deficit exists in a Member State, the Council and the Commission shall, in the subsequent procedural steps of that Article of the TFEU, take into account the relevant factors referred to in paragraph 3 of this Article, as they affect the situation of the Member State concerned, including as specified in Article 5(2) of this Regulation, in particular in establishing a deadline for the correction of the excessive deficit and eventually extending that deadline. However, those relevant factors shall not be taken into account for the decision of the Council under Article 126(12) TFEU on the abrogation of some or all of its decisions under Article 126(6) to (9) and (11) TFEU.’;

--------------------------

Changed*Regulation (EU) […] of [insert a date] [insert full title] (OJ L …).…).’

(2) Article 3 is replaced by the following:

‘Article 3

Change 28

Changed1. Within two weeks of the adoption by the Commission of a report issued in accordance with Article 126(3) TFEU, the Economic and Financial Committee shall formulate an opinion in accordance with Article 126(4) TFEU. The opinion of the Economic and Financial Committee shall be made public.

2. Taking fully into account the opinion referred to in paragraph 1 of this Article, the Commission, if it considers that an excessive deficit exists, shall address an opinion and a proposal to the Council in accordance with Article 126(5) and (6) TFEU and shall inform the European Parliament thereof.

Change 29

Changed3. The Council shall decide on the existence of an excessive deficit in accordance with Article 126(6) TFEU, as a rule within four months of the reporting dates established in Article 3(2) and (3) of Regulation (EC) No 479/2009. When it decides that an excessive deficit exists, the Council shall at the same time make recommendations to the Member State concerned in accordance with Article 126(7) TFEU. The Council shall make its decisions andunder recommendationsArticle 126(6) TFEU public.

Change 30

Changed4. The Council recommendation made in accordance with Article 126(7) TFEU shall establish a maximum deadline of six months for effective action to be taken by the Member State concerned. When warranted by the seriousness of the situation, the deadline for effective action may be three months. The Council recommendation shall also establish a deadline for the correction of the excessive deficit. In its recommendation, the Council shall also request that the Member State implements a corrective net expenditure path,path which ensures that the general government deficit remains or is brought and maintained below the reference value within the deadline set in the recommendation. ForWhere the excessive deficit procedure was opened on the basis of the deficit criterion, for the years when the general government deficit is expected to exceed the reference value, the corrective net expenditure path shall be consistent with a minimum annual structural adjustment of at least 0,5% of GDP as a benchmark.

Change 31

ChangedTheWhere correctivethe netexcessive expendituredeficit pathprocedure shallwas alsoopened puton the debtbasis ratioof onthe adebt plausiblycriterion, downwardthe pathcorrective leadingnet toexpenditure sustainablepath debtshall reductionbe orat keepleast itas atdemanding aas prudentthe levelnet havingexpenditure regardpath toadopted theby criteriathe establishedCouncil in accordance with Article 616 of Regulation (EU) [on the preventive arm]. The corrective netarm], expenditureand pathcorrect shallas ensurea thatrule the average annual fiscal adjustmentcumulated effortdeviations inof the first three years is at least ascontrol highaccount asby the average annual fiscaldeadline effortset ofby the total adjustment period.Council.

Change 32

Changed5. Within the deadline provided for in paragraph 4 of this Article, the Member State concerned shall report to the Council and the Commission on action taken in response to the Council’s recommendation under Article 126(7) TFEU. The report shall include the targets for government expenditure and revenue and for the discretionary measures on both the expenditure and the revenue side consistent with the Council’s recommendation, as well as information on the measures taken and the nature of those envisaged to achieve the targets. The reportMember shallState alsoshall includemake the opinionreport ofpublic. The Member State may invite the relevant independent fiscal institution ofto theproduce Membera Statenon-binding, concernedseparate report on the adequacysufficiency of the measures taken and envisaged with respect to the targets. The Member State shall make the report public.

Change 33

Removed6. Where effective action has been taken in compliance with a recommendation under Article 126(7) TFEU or where exceptional circumstances outside the control of the government with a major impact on the public finances of the Member State concerned, including on the respect of the corrective net expenditure path recommended by the Council pursuant to paragraph 4 of this Article, occur after the adoption of that recommendation, the Council may decide, on a recommendation from the Commission, to adopt a revised recommendation under Article 126(7) TFEU. The revised recommendation, taking into account the relevant factors referred to in Article 2(3) of this Regulation may, in particular, extend the deadline for the correction of the excessive deficit by one year as a rule. In case the Council has established the existence of a severe economic downturn in the euro area or in the Union as a whole in accordance with Article 24 of Regulation (EU) [on the preventive arm], the Council may also decide, on a recommendation from the Commission, to adopt a revised recommendation under Article 126(7) TFEU provided that this does not endanger fiscal sustainability in the medium term. The revised recommendation may, in particular, extend the deadline for the correction of the excessive deficit by one year as a rule.’;

Added6. The Council may decide, on a recommendation from the Commission, to adopt a revised recommendation under Article 126(7) TFEU where:

Added(a) effective action has been taken in response to such recommendation and the conditions referred to in Article 25 of Regulation (EU) [on the preventive arm] apply, or

Added(b) the conditions referred to in Article 24 of Regulation (EU) [on the preventive arm] apply.

AddedThe revised recommendation may, in particular, extend the deadline for the correction of the excessive deficit by one year as a rule.’;’