Changes from report parliamentary committee draft to plenary report

Added(7) The multilateral surveillance procedure set out in Article 121(2), (3) and (4) and Article 148(4) TFEU should monitor in accordance with more detailed rules the full range of economic and employment developments in each of the Member States and in the Union. That includes the detection of macroeconomic imbalances and the prevention and correction of excessive imbalances as set out in Regulations (EU) No 1174/2011 and (EU) No 1176/2011 of the European Parliament and of the Council. For the monitoring of such economic and employment developments, Member States should present information in the form of medium-term fiscal-structural plans.

RemovedRecital 33: (33) In order to ensure effective implementation and appropriate monitoring of this Regulation, the power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission in respect of: the methodology for debt sustainability analysis, the methodology to assess plausibility that the projected public debt ratio is on a downward path leading to sustainable debt reduction or remains at a prudent level, and the implementation of a scoreboard. It is of particular importance that the Commission carries out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making29. In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States' experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts.

Added(7a) Pursuant to Article 148(4) TFEU, the Commission, within the Social Convergence Framework, identifies risks to upward convergence for Member States in the Joint Employment report and subsequently publishes ‘Social Convergence Reports’ for those Member States which it has identified as facing risks to upward social convergence. The country-specific conclusions of the multilateral surveillance activities should provide input to the Commission’s country-specific recommendations.

RemovedRecital 33 a (new): (33a) A methodology for debt sustainability analysis should be adopted by means of a delegated act no later than 12 months after the entry into force of this Regulation. For that purpose, the Commission should identify factors that are relevant to assessing the sustainability of debt. For the first year in which the Member States have to submit their medium-term fiscal-structural plans, the basis for the underlying medium-term public debt projection framework should be the 2022 Debt Sustainability Monitor.

Added(8) Detailed rules should therefore be laid down regarding the content, submission, assessment and monitoring of the national medium-term fiscal-structural plans, in order to promote debt sustainability, investments and reforms, the common priorities of the Union and sustainable and inclusive growth in the Member States and prevent the occurrence of excessive government deficits through medium-term planning.

RemovedArticle 1 – paragraph 1: This Regulation sets out rules ensuring effective coordination of economic policies of the Member States, thereby supporting the achievement of the Union’s objectives for sustainable and inclusive growth and employment.

Added(9) National medium-term fiscal-structural plans should bring together the fiscal, structural reforms and investment commitments of each Member State and these plans should be the cornerstone of the economic governance framework of the Union. Each Member State should present a medium-term plan that sets out its net expenditure path as well as priority public investment and reform commitments that together ensure sustained and gradual debt reduction and sustainable and inclusive growth, avoiding a pro-cyclical fiscal policy, as well as broader reform and investment commitments, including in relation to the European Green Deal,▌ the European Pillar of Social Rights, the Digital Decade Policy Programme 2030 and the Strategic Compass for Security and Defence. The national plans should also assess the public investment gaps, in particular to achieve those common Union priorities. During the lifetime of the Recovery and Resilience Facility, commitments undertaken in the national Recovery and Resilience Plans should be duly taken into account.

RemovedArticle 1 – paragraph 2: It lays down detailed rules concerning the content, submission, assessment and monitoring of national medium-term fiscal-structural plans as part of multilateral budgetary surveillance by the Council and the Commission, with involvement of the European Parliament, so as to promote debt sustainability, investments and reforms, common priorities of the Union, and sustainable and inclusive growth in the Member States and prevent the occurrence of excessive government deficits, by medium-term planning ensuring consistency within the Union, including the euro area.

Added(10) Cohesion policy funds are also synchronised with the European Semester process. As the long-term investment policy of the EU budget, cohesion policy investments and reforms should also be duly taken into account in the drawing of the national medium-term fiscal-structural plans. Each Member State should also explain how its national medium-term fiscal-structural plan will ensure consistency and, where appropriate, complementarity, with the expenditure on EU programmes fully matched by EU funds revenue and the relevant national co-financing.

RemovedArticle 2 – paragraph 1 – point 2: (2) ‘net expenditure’ means government expenditure net of interest expenditure, discretionary revenue measures, expenditure on programmes of the Union fully matched by Union funds revenue, national expenditure on co-financing of programmes funded by the Union capped with a limit of 0,25% of GDP, cyclical elements of unemployment benefit expenditure, and costs related to the borrowing of funds for the loans related to the national Recovery and Resilience Facility Plans;

Added(11) The presentation of the national medium-term fiscal-structural plan should be preceded by a technical dialogue with the Commission to ensure compliance with the provisions of this Regulation as well as equal treatment of Member States. The technical dialogue should be properly documented for the purpose of transparency and accountability towards the European Parliament. On the basis of a recommendation from the Commission accompanied by an opinion of the European Fiscal Board (EFB) on the Union dimension and the original opinion of the national independent fiscal institution on the plan of the Member State concerned, the Council should set the net expenditure path and endorse the reform and investment commitments, including those taken for the possible extension of the adjustment period, as appropriate.

RemovedArticle 2 – paragraph 1 – point 3: (3) ‘reference trajectory’ means the net expenditure trajectory put forward by each Member State and negotiated thereafter with the Commission to provide guidance to Member States with public debt above the 60% of gross domestic product (GDP) reference value or government deficit above the 3% of GDP reference value when drawing up their national medium-term fiscal-structural plans;

Added(12) In order to simplify the Union fiscal framework and increase transparency, a single operational indicator anchored in debt sustainability should serve as a basis for setting the fiscal path and carrying out annual fiscal surveillance for each Member State. That single operational indicator should be based on nationally financed net primary expenditure, that is to say government expenditure net of interest expenditure, discretionary revenue measures, ▌expenditure on programmes of the Union fully matched by Union funds revenue, national expenditure on co-financing of programmes funded by the Union capped at a limit of 0,25% of GDP, cyclical elements of unemployment benefit expenditure, and costs related to the borrowing of funds for the loans related to the national Recovery and Resilience Facility Plans. This indicator allows for macro-economic stabilisation as it is not affected by the operation of automatic stabilisers, including revenue and expenditure fluctuations outside the direct control of the government.

RemovedArticle 3 – paragraph 1: In order to ensure closer coordination of economic and relevant social policies and sustained convergence of the economic and social performance of the Member States, the Council and the Commission, with the involvement of the European Parliament in accordance with Article 25a, shall conduct multilateral surveillance within the European Semester in accordance with the objectives and requirements set out in the TFEU. Multilateral surveillance shall rely on high quality and independent statistics, produced in accordance with the principles laid down in Regulation (EC) No 223/2009 of the European Parliament and of the Council.

Added(13) To initiate the preparation of national medium-term fiscal-structural plans, the Commission should provide the underlying medium-term public debt projection framework based on the debt sustainability analysis methodology and macroeconomic forecast and assumptions for each Member State. For Member States with a public debt above the 60% of GDP reference value or a government deficit above the 3% of GDP reference value, a reference trajectory should be put forward to specify the minimum fiscal adjustment that brings the debt trajectory of the Member State on a plausibly downward path leading to sustainable debt reduction or maintains debt at a prudent level. ▌The sustainability of that debt reduction should result from appropriate fiscal policies.

RemovedArticle 3 – paragraph 2 – introductory part: In order to achieve its overarching aim of ensuring closer coordination of economic, social, budgetary and structural policies and the overall assessment of economic performance, the European Semester shall include:

Added(13a) For the preparation of the reference trajectory, the Commission and the Member State concerned should hold a dialogue to assess compliance of the trajectory with the provisions of this Regulation. As part of that dialogue, the Member State may decide to present a proposal for a trajectory to the Commission. If as a result of the dialogue, the Commission and the Member State concerned disagree on whether the proposal for a reference trajectory complies with the provisions of this Regulation, the Commission should put forward a reference trajectory meeting the requirements laid down in this Regulation.

RemovedArticle 4 – paragraph 1: 1. Whenever necessary, following the assessment pursuant to this Regulation of the medium-term fiscal-structural plans, the annual progress reports and the socio-economic situation of the Member States concerned, the Council shall, on the basis of recommendations from the Commission, address recommendations to those Member States making full use of the legal instruments provided in Articles 121 and 148 TFEU and related secondary legislation.

Added(14) The reference trajectory ▌should also ensure that the government deficit is brought and maintained below the 3% of gross domestic product (GDP) reference value. It should also ensure that the public debt ratio stabilises over the adjustment period and is reduced every year over the projection period on average by at least one percentage point of debt to GDP for the Member States with a debt-to-GDP ratio exceeding 90% and at least half a percentage point for the Member States with a debt-to-GDP ratio of 60% to 90%.

RemovedArticle 4 – paragraph 2: 2. Member States shall take due account of the broad guidelines for the economic policies of the Member States, of the employment guidelines and of the recommendations referred to in Article 3, second paragraph, points (a) and (b) before taking key decisions in the development of their economic, social, employment, structural and budgetary policies. Progress shall be monitored by the Commission.

Added(15) In order to assess whether further adjustments are required towards the end of the four-year implementation period of the national medium-term fiscal-structural plan, a new reference trajectory should be put forward ▌ if the public debt of the Member State is still above 60% of GDP reference value or its government deficit is higher than 3% of GDP reference value.

RemovedChapter III – title: THE REFERENCE TRAJECTORY

Added(16) Prior to the submission of the national medium-term fiscal-structural plan, each Member State should consult relevant stakeholders, including regional authorities, and annex the result of that consultation to the plan. Each national medium-term fiscal-structural plan should also mention its status in the context of national procedures, notably whether ▌there has been parliamentary approval of the plan and whether, if applicable, the national parliament had the opportunity to discuss the Council recommendation on the previous plan and▌ any other Council recommendation or decision, or any Commission warning.

RemovedArticle 5 – title: Reference trajectory

Added(16a) A new government in a Member State may submit a new or revised national medium-term fiscal-structural plan to the Commission. However, if there are objective circumstances preventing the implementation of the plan, a Member State may request to submit a revised plan to the Commission by no later than 12 months before the end of the current plan. A new or revised national medium-term fiscal-structural plan should only attempt to reverse or remove investments present in the original plan if their removal does not result in unjustified additional costs for the Member State.

RemovedArticle 5 – paragraph 1: For each Member State having a public debt above the 60% of GDP reference value or a government deficit above the 3% of GDP reference value, the Commission shall put forward, in a report to the European Parliament and the Economic and Financial Committee, a reference trajectory for net expenditure, following the submission of a proposal by the Member State concerned and the dialogue referred to in Article 7(1a). / The trajectory for net expenditure shall cover a minimum adjustment period of 4 years of the national medium-term fiscal-structural plan, and its possible extension by a maximum of 3 years pursuant to Article 13.

Added(17) When Member States use assumptions in their reference trajectory that differ from the Commission’s standard medium-term debt projection framework and macroeconomic forecast and assumptions, they should explain and duly justify the differences in a transparent manner and based on sound economic arguments, in the dialogue with the Commission on the reference trajectory.

RemovedArticle 6 – title: Requirements for the reference trajectory

Added(18) Since Member States could face additional costs at the end of their medium-term fiscal-structural plan such as ageing costs or an unfavourable interest-growth differential, they should ensure that the headline balance at the end of the adjustment period will be sufficient to ensure that the deficit durably stays below the 3% of GDP reference value.

RemovedArticle 6 – paragraph 1 – introductory part: The reference trajectory shall ensure that:

Added(19) In order to allow for a proper interaction between the common Union framework and national budgetary frameworks, the Commission should base its assessment only on nationally financed net primary expenditure developments. Member States should be able to set their national budgetary objectives in terms of a different indicator, such as the structural balance if this is required by their national budgetary framework.

RemovedArticle 6 – paragraph 1 – point a: (a) the public debt ratio is put or remains on a plausibly downward path, leading to sustainable debt reduction or stays at prudent levels;

Added▌

RemovedArticle 6 – paragraph 1 – point d: (d) the public debt ratio stabilises over the adjustment period and is reduced by at least [x] p.p of debt to GDP on average over the projection period (i.e. the adjustment period plus 10 years);

Added(21) In order to ensure the implementation of the medium-term fiscal-structural plans, the Commission and the Council should monitor the reform and investment commitments made in these plans under the European Semester, based on the annual progress reports submitted by the Member States, and in accordance with the provisions of Articles 121 and 148 TFEU. To that effect, they should engage in a European Semester dialogue with the European Parliament and a medium-term structural-fiscal plan dialogue with the competent committee of the European Parliament. The Commission should take into account elements arising from the views expressed through those dialogues.

RemovedArticle 6 – paragraph 1 – point e: deleted

Added(21a) The European Parliament should be duly involved in a regular and structured way in the European Semester. The Council and the Commission should regularly report to the European Parliament on the application of this Regulation and include in their reports the results of the multilateral surveillance carried out pursuant to this Regulation. In order to ensure transparency and accountability in the application of this Regulation, the Commission should transmit, subject to appropriate confidentiality arrangements where necessary, relevant documents and information simultaneously and on equal terms to the European Parliament and to the Council, such as the medium-term fiscal-structural plans submitted by Member States and the proposed net expenditure path, the debt sustainability assessments and an overview of the Commission's preliminary findings concerning the progress in the implementation of the plans.

RemovedArticle 6 – paragraph 2: The reference trajectories shall be differentiated for each Member State.

Added(22) To ensure a more gradual debt reduction, the adjustment period can be extended by a maximum of 3 years if the Member State underpins its medium-term fiscal-structural plan with a set of verifiable and time-bound reforms and investment that, taken altogether as a rule: are growth and resilience-enhancing, support fiscal sustainability, address the common priorities of the Union, address relevant country-specific recommendations addressed to the Member State under the European Semester, and address the country-specific investment priorities ▌. If duly justified, a Member State may be allowed to address several but not all of those criteria with regard to its set of reforms and investments underpinning an extension of the adjustment period.

RemovedArticle 7 – title: The Reference Trajectory Procedure

Added(23) With a view to ensuring an equitable and transparent process, the reform and investment commitments should be assessed using a common Union framework. During the lifetime of the Recovery and Resilience Facility, commitments in the national Recovery and Resilience Plans should be consistent with the set of reforms and investments for an extension of the adjustment period, where applicable. The set of reforms and investments underpinning an extension of the fiscal adjustment path period should be commensurate with the degree of public debt challenges as established in the most recent update of the Debt Sustainability Monitor and challenges to medium-term growth in the Member State, including demographic challenges. For Member States where public debt challenges are linked to significant challenges to medium-term growth, the set of reforms and investments is expected to also address bottlenecks to medium-term growth.

RemovedArticle 7 – paragraph 1 – introductory part: 1. By [1 February] of the year [xxxx] in which the Member States have to submit for the first time their medium-term fiscal-structural plans or, as appropriate, the Commission shall provide the following information to the European Parliament and the Council:

Added(24) The set of reform and investment commitments put forward in the national medium-term fiscal-structural plans should actively contribute to the common priorities of the Union. The Commission should pay particular attention to that contribution when assessing the net expenditure path proposed by the Member State. That set of reform and investment commitments should also be consistent with the implementation of the national strategies put forward by the Member State concerned to address the relevant Union priorities and with the Recovery and Resilience Plans, during the lifetime of the Recovery and Resilience Facility, and with any Union investment instruments that address the common priorities of the Union or serve the same purpose as the Recovery and Resilience Facility.

RemovedArticle 7 – paragraph 1 – point a: (a) the underlying medium-term public debt projection framework based on the debt sustainability analysis methodology and results;

Added(25) Where the verifiable and time-bound set of reform and investment commitments underpinning the more gradual net expenditure path is not met within the specified deadline, the Council, on a recommendation from the Commission, can recommend that adjustment be steepened, that is to say by shortening the extension of the net expenditure path.

RemovedArticle 7 – paragraph 1 – point c: deleted

Added(26) To inform enforcement actions, in particular a report under Article 126(3) TFEU, the Commission should set up a control account for each Member State to keep track of annual deviations of the net expenditure observed in the Member State from the net expenditure path set by the Council, summing those deviations over time. A Member State should be deemed not to be in compliance with its net expenditure path where the cumulated balance of the control account during the adjustment period is higher than 1% of GDP in the years of positive GDP growth. For certain strategic investments that address the common priorities of the Union, and that have added value for the Union as a whole, the Commission should be able to exceptionally allow Member States to exceed the reference value in the control account, for example in exceptional cases where investment costs increase due to unforeseen circumstances or where the need to make additional strategic investments arises during the adjustment period. Any deviation from the reference value can be granted by the Commission for a period of up to 5 years per request.

RemovedArticle 7 – paragraph 1 a (new): 1a. By [1 March] of the year referred in paragraph 1, each Member State shall submit its proposal for a reference trajectory to the Commission. That proposal shall take into account the information referred in paragraph 1. Following the submission of a proposal, the Commission and the Member State shall hold a dialogue with the objective of ensuring that the proposed reference trajectory complies with Articles 5 and 6. In the event of disagreement between the Commission and the Member State following that dialogue, the reference trajectory put forward by the Commission shall apply. / The Commission shall provide the reference trajectories to the Council and the European Parliament, including the proposed trajectories put forward by the Member States, data, assumptions and calculations underlying the trajectories in a way that allows for replication.

Added(26a) A dedicated scoreboard should be established by way of a delegated act to display the progress of the implementation of the medium-term fiscal-structural plans of the Member States. The scoreboard should be operational by June 2024 and should be updated by the Commission twice a year.

RemovedArticle 7 – paragraph 3: 3. Each Member State having a public debt above the 60% of GDP reference value or a government deficit above the 3% of GDP reference value shall update its proposal for a reference trajectory in time for the submission of the next cycle of medium-term fiscal-structural plans

Added(27) Independent fiscal institutions have proven their capacity to foster fiscal discipline and strengthen the credibility of Member States’ public finances. In order to enhance national ownership, the role of independent fiscal institutions, traditionally mandated to monitor compliance with the national framework, should be expanded to the economic governance framework of the Union.

RemovedArticle 8 – title: Assessment of plausibility and debt sustainability

Added(27a) The Commission should establish a European Fiscal Board (EFB) as an independent expert group to advise on the Union’s economic policy coordination.

RemovedArticle 8 – paragraph 1: To assess plausibility that the projected public debt ratio of the Member State concerned is on a downward path which, with appropriate fiscal policies, should lead to sustainable debt reduction or remains at a prudent level, the Commission shall use a methodology based on the following conditions:

Added(28) When providing an opinion on the draft budgetary plans submitted pursuant to Article 6 of Regulation (EU) No 473/2013 of the European Parliament and of the Council, the Commission should assess if the draft budgetary plans are consistent with the net expenditure paths pursuant to this Regulation.

RemovedArticle 8 – paragraph 1 – point a (new): (a) public debt ratio should be declining, or stay at prudent levels, under the deterministic scenarios of the Commission’s medium-term public debt projection framework, based on debt sustainability analysis methodology;

Added(29) Particular attention should be given to significant risks of divergences of budgetary positions from the net expenditure path set by the Council. Therefore it is appropriate to complement the multilateral surveillance procedure set out in Article 121(3) and (4) TFEU with an early warning system whereby the Commission pursuant to Article 121(4) TFEU alerts a Member State at an early stage about the need to take the necessary budgetary corrective action in order to prevent its government deficit becoming excessive. Moreover, in the event of persistent budgetary slippage the Council should reinforce its recommendation and make it public.

RemovedArticle 8 – paragraph 1 – point b (new): (b) the risk of the public debt ratio not decreasing in the 5 years following the adjustment period of the national medium-term fiscal-structural plan is sufficiently low, that risk being assessed with the help of the Commission’s stochastic analysis.

Added(30) In case of major shocks to the euro area or the Union as a whole, it is necessary to have a general escape clause to be able to deal with a severe economic downturn in the euro area or the Union as a whole by allowing for a deviation from the net expenditure path provided that it does not endanger fiscal sustainability in the medium term.

RemovedArticle 8 – paragraph 1 a (new): The Commission shall inform the European Parliament and the Council of its analysis of plausibility and the underlying data, subject to confidentiality arrangements if they are necessary.