Changes from report parliamentary committee draft to plenary report

AddedD. whereas the 2024 Council Recommendation on the economic policy of the euro area calls on the Member States to take action, both individually and collectively, to strengthen competitiveness, boost economic and social resilience, preserve macro-financial stability and sustain a high level of public investment to support the green and digital transitions; whereas fiscal stability is a basis for both sustainable high social standards in the EU and the competitiveness of the EU;

RemovedD. whereas excessive deficit procedures were opened, or kept open, for eight Member States in 2024; whereas some Member States were not subject to an excessive deficit procedure, despite having a deficit above 3 % of GDP in 2023;

AddedE. whereas the main objectives of the new economic governance framework are to strengthen debt sustainability and sustainable and inclusive growth in all Member States, as well as enabling all Member States to undertake the necessary reforms and investments in the EU’s common priorities, which include (i) a fair green and digital transition, (ii) social and economic resilience including the European pillar of social rights, (iii) energy security, and (iv) the build-up of defence capabilities; whereas disparities in fiscal capacity among Member States hinder equitable investment in strategic priorities and weaken cohesion within the single market;

RemovedE. whereas the Commission concluded in June 2024 that eight Member States had exceeded the recommended expenditure growth levels in 2023;

AddedF. whereas reference values of up to 3 % of government deficit to GDP and 60 % of public debt to GDP are defined by the TFEU; whereas the EU’s headline deficit and government debt-to-GDP ratio remain above the reference values; whereas both the headline deficit and government debt-to-GDP ratio vary across the EU, with significantly divergent situations in different Member States;

Removed1. Notes that, in the last few years, the EU has demonstrated a high degree of resilience in the face of major shocks, among other factors, thanks to a coordinated policy response; further recalls that promoting sustainable growth in a sustained manner means promoting responsible fiscal policies, structural reforms and investments that increase productivity;

AddedG. whereas excessive deficit procedures were opened, or kept open, for eight Member States in 2024; whereas some Member States were not subject to an excessive deficit procedure, despite having a deficit above 3 % of GDP in 2023, as decided by the Council and the Commission after a balanced assessment of all the relevant factors;

Removed2. Believes that overcoming competitive and geopolitical challenges will require the transfer of expenditure to the EU level in certain policy areas related to European public goods to increase the efficiency of overall public expenditure; welcomes the Union’s commitment to increasing its spending efficiency and investments in overall defence capabilities to match its needs in the context of rising threats and security challenges;

AddedH. whereas no procedure concerning macroeconomic imbalances has been opened by the Council since the establishment of this procedure in 2011; whereas, in accordance with its Alert Mechanism Report, the Commission will conduct an in-depth review of 10 countries identified as experiencing macroeconomic imbalances or excessive imbalances in 2025;

Removed3. Highlights the fact that a consistent and comprehensive industrial policy is vital to increase investments in the EU’s innovation capacity, while preserving competitiveness and the integrity of the single market;

AddedI. whereas the success of a framework relies heavily on its proper, transparent and effective implementation from the outset, while taking into account the Member States’ starting points and the individual challenges they face;

AddedJ. whereas the timely submission of the national medium-term fiscal-structural and draft budgetary plans is a precondition for the effective implementation and credibility of the new rules; whereas the first national fiscal and budgetary plans have already been assessed by the Council; whereas the equal treatment of the Member States and compliance with the requirements outlined in Regulation (EU) 2024/1263 as regards the fiscal plans are necessary for the effective implementation of the framework;

AddedK. whereas the economic outlook for the EU remains highly uncertain and there is a growing risk of future events or situations that will negatively affect the economy; whereas Russia’s aggression in Ukraine and the conflicts in the Middle East are aggravating geopolitical risks and highlighting Europe’s energy vulnerability; whereas a rise in protectionist measures by trading partners may affect world trade, with negative repercussions for the EU economy; whereas current geopolitical tensions have demonstrated the need for the EU to further strengthen its open strategic autonomy and remain competitive in the global market, while ensuring that no one is left behind;

AddedL. whereas the implementation of the revised economic governance framework is expected to lead to a restrictive fiscal stance for the euro area, as a whole, of 0.5 % of GDP in 2024 and 0.25 % of GDP in 2025; whereas political discussion is needed to ensure appropriate public investment levels following the expiry of the Recovery and Resilience Facility (RRF) in 2026;

AddedM. whereas the Draghi report points out that the gap between the EU and the United States in the level of GDP at 2015 prices has gradually widened, from slightly more than 15 % in 2002 to 30 % in 2023, and estimates the necessary additional annual investment by the EU at EUR 800 billion, including EUR 450 billion for the energy transition;

AddedN. whereas the new Commission has set the goal of being an ‘investment Commission’; whereas discussions on addressing the significant investment gap and reducing borrowing costs are needed in the EU; whereas the framework, where appropriate, should be strengthened by EU-level investment instruments and tools designed to minimise the cost for EU taxpayers and maximise efficiency in the provision of European public goods;

AddedO. whereas the Member States need to have the necessary control and audit mechanisms to ensure respect for the rule of law and to protect the EU’s financial interests, in particular to prevent fraud, corruption and conflicts of interest and to ensure transparency;

AddedP. whereas it is important to increase the share of ‘fully implemented’ country-specific recommendations (CSRs) and to link them more closely to the respective country reports in order to contribute to more effective economic governance;

Added1. Notes that in the last few years, the EU has demonstrated a high degree of resilience and unity in the face of major shocks, thanks, among other things, to a coordinated policy response involving all the EU institutions, including a flexible approach to the use of new and existing instruments; further recalls that promoting long-term sustainable growth means promoting a balance between responsible fiscal policies, structural reforms and investments that together increase efficiency, productivity, employment and prosperity, and also entails boosting competitiveness, fostering the single market, developing economic growth policies and revising the regulatory framework to attract investments; stresses the fundamental need for sustainable, inclusive and competitive economic growth;

Added2. Notes that economic policy coordination is fundamentally necessary for a successful economic and monetary union; recalls that the European Semester is the well-established framework for coordinating fiscal, economic, employment and social policies across the EU, in line with the Treaties, while respecting the defined national competences;

Added3. Notes the Commission’s commitment to ensure that the European Semester drives policy coordination for competitiveness, sustainability and social fairness, as well as the integration of the UN Sustainable Development Goals and the European pillar of social rights; notes that the European Green Deal remains a core deliverable for the Commission;

Added4. Highlights the fact that an integrated, coordinated, targeted and horizontal industrial policy is vital to increase investments in the EU’s innovation capacity, while bolstering competitiveness and the integrity of the single market;

Added5. Highlights that public and private investments are crucial for the EU’s ability to cope with existing challenges, including developing the EU’s innovation capacity and implementing the just green and digital transitions, and that they will increase the EU’s resilience, long-term competitiveness and open strategic autonomy; calls attention to the need for strategic investments in energy interconnections, low-carbon energies (such as renewables) and energy efficiency to, among other things, (i) make the EU independent from imported fossil fuels and prevent the possible inflationary effects of dependence on these, (ii) modernise production systems and (iii) promote social cohesion; recalls that the materialisation of climate-change-related physical risks can greatly affect public finances, as demonstrated by the floods in Valencia in October 2024 and the cyclone in Mayotte in December 2024; calls on the Member States to make the necessary investments to improve climate change mitigation and adaptation and enhance the resilience of the EU economy;

Added6. Calls on the Commission to come up with initiatives, on the basis of the Budapest Declaration; to make the EU more competitive, productive, innovative and sustainable, by building on economic, social and territorial cohesion and ensuring convergence and a level playing field both within the EU and globally; notes the development of a new competitiveness coordination tool; expects the Commission to clarify how this tool will interact with the European Semester; stresses the importance of supporting micro, small and medium-sized enterprises as key drivers of economic growth and employment within the EU;

Added7. Stresses the need to foster a dynamic entrepreneurial ecosystem that supports innovators, recognising their critical role in driving global competitiveness, economic resilience, job creation and open strategic autonomy;

Added8. Welcomes the Commission’s recommendations regarding the economic policy of the euro area, urging the Member States to enhance competitiveness and foster productivity through improved access to funding for businesses, reduced administrative burdens, and public and private investment in areas of EU common priorities, which include (i) a fair green and digital transition, (ii) social and economic resilience including the European pillar of social rights, (iii) energy security, and (iv) the build-up of defence capabilities;

Added9. Welcomes the Commission’s recommendation that, when defining fiscal strategies, euro area Member States should aim to improve the quality and efficiency of public expenditure and public revenue, which are essential for ensuring the sustainability of public finances, while minimising detrimental and distortive impacts on economic growth; stresses that this could be achieved by, among other things, increasing European coordination and reducing tax avoidance and tax evasion; welcomes the Draghi report’s conclusion that a coordinated reduction of labour income taxation for low- to middle-income workers is needed to promote EU competitiveness; recalls the Member States’ competence in tax policy; invites the Member States to redirect the tax burden from income to less distortive tax bases;

Added10. Highlights the need to create fiscal buffers to address fiscal sustainability challenges, ensuring sufficient resources for investment and for dealing with potential future shocks and crises; stresses the importance of promoting competitive, sustainable and inclusive growth in supporting long-term fiscal stability and resilience;

Economic prospects for the EU

Change 3

Changed4.11. NotesExpresses concern that, according to the Commission’s autumn 2024 economic forecast, EU GDP is expected to grow by 0.9 % (0.8 % in the euro area) in 2024 and2024, by 1.5 % (1.3 % in the euro area) in 2025;2025 and by 1.8% (1.6% in the euro area) in 2026; recalls that these figures reflect a gradual recovery, but also limited economic expansion compared to previous economic cycles; notes that the economic outlook for the EU remains highly uncertain, with risks largelymore tiltedlikely to thenegatively upside;affect economic growth;

Change 4

Changed5.12. StressesNotes that highthe public debt levelsratio undermineis economicprojected stabilityto andincrease theto capacity83.0 to% respondin tothe crises;EU isand concerned89.6 that% in the publiceuro debtarea ratioin is2025 projectedand to increase (to 83.083.4 % in the EU and 89.690 % in the euro area)area in 2025,2026, upwhen fromthe output gap will be virtually closed both in the EU and in the euro area, and that this is higher than the levels in 2024 (82.4 % for the EU and 89.1 % for the euro area);

Change 5

Removed6. Regrets the fact that eight Member States have excessive deficits and welcomes remedial action;

Added13. Recalls that developments in public debt ratios vary from country to country; points out that policy uncertainty and geopolitical risks can contribute significantly to increasing the cost of borrowing on the financial markets for the Member States; notes that unsustainable debt levels could undermine economic stability and decrease the Member States’ economic resilience and capacity to respond to crises; highlights that in 2024 and 2025, 11 euro area Member States are expected to have debt ratios above the Treaty reference value of 60 %, with 5 remaining above 100 %;

Removed7. Notes that the Commission’s 2024 Alert Mechanism Report identifies macroeconomic imbalances in 12 Member States;

Added14. Notes that according to the Commission’s 2024 autumn economic forecast, the general government deficit in the EU and the euro area is expected to decline to 3.1 % and 3 % of GDP, respectively, in 2024, and to decrease further to 3 % and 2.9 % of GDP in 2025 and 2.9 % and 2.8 % of GDP in 2026; stresses that 10 EU Member States are expected to post a deficit above the Treaty reference value of 3 % of GDP in 2024; points out that this number will remain stable in 2025, and that in 2026, most Member States are forecast to have weaker budgetary positions than before the pandemic (2019), with 9 of them still posting deficits of above 3 %;

RemovedRevised EU economic governance framework and its effective enforcement

Added15. Notes that eight Member States have excessive deficits; recalls that the Council has taken remedial action and calls on the Member States concerned to take steps to reduce excessive deficits while minimising the socio-economic impact; recalls the importance of consistency in applying the excessive deficit procedure to the Member States;

Removed8. Recalls that the reform aims to make the framework simpler, more transparent and effective, with greater national ownership and better enforcement; recalls, furthermore, that it aims to strengthen fiscal sustainability through gradual and tailor-made adjustments complemented by reforms and investments and to promote countercyclical fiscal policies;

Added16. Notes that according to the Commission’s autumn 2024 economic forecast, inflation is projected to fall from 2.6 % in 2024 to 2.4 % in 2025 and 2 % in 2026 in the EU, and from 2.4 % in 2024 to 2.1 % in 2025 and 1.9 % in 2026 in the euro area; recalls that although this reduction is a positive development, core inflation remains relatively high, which points to persistent inflationary pressures; notes that fiscal policy, while safeguarding fiscal sustainability, can support monetary policy in reducing inflation, and should provide sufficient space for additional investments and support long-term growth;

Removed9. Deplores the low level of enforcement of the fiscal rules framework in the past; stresses that it is essential for the new framework to ensure the equal treatment of the Member States; affirms that a successful and credible framework relies heavily on its rigorous implementation;

Added17. Notes that the Commission has not been able to present the Annual Sustainable Growth Survey, the Alert Mechanism Report, the draft euro area recommendation and the draft joint employment report at the same time;

Removed10. Affirms that a renewed focus on medium-term net expenditure will require comprehensive reforms of national budgetary planning procedures across the Member States;

Added18. Observes that according to the Commission’s 2025 Alert Mechanism Report, in-depth reviews will be prepared in 2025 for the nine countries that were identified as experiencing imbalances or excessive imbalances in 2024, while another in-depth review should be undertaken for another Member State, as it presents particular risks of newly emerging imbalances;

RemovedNational fiscal and budgetary plans

Added19. Underlines that housing is directly interconnected with the macroeconomic imbalances in the euro area, with damaging implications for economic resilience, dynamism and social progress and for regional and intra-EU mobility; is concerned that in some Member States, house prices are likely to increase and may become hard to curb in the absence of a holistic strategy;

Removed11. Regrets that not all Member States were able to submit their national medium-term fiscal-structural and draft budgetary plans on time; underlines that this constitutes a major setback for the effective implementation of the new rules and their credibility; reaffirms the importance of the timely submission of draft budgetary plans to translate commitments outlined in fiscal plans into concrete policies;

AddedRevised EU economic governance framework and its effective implementation

Removed12. Notes that 18 Member States have proposed deviations from the expenditure path determined by the Commission, resulting, in some cases, in higher average expenditure growth; laments the fact that these deviations are justified on the basis of significant discrepancies between Member States’ economic assumptions and those of the Commission; calls on the Commission to ensure that economic arguments underpinning the new paths proposed by Member States are sound and data-driven; regrets that Member States are delaying their fiscal adjustments to the end of the period, coinciding with slower GDP growth; calls on the Commission to prevent procyclical policies;

Added20. Recalls that the reform aims to make the framework simpler, more transparent and more effective, with greater national ownership and better enforcement, while differentiating between Member States on the basis of their individual starting points, representing a step forward in ending the ‘one-size-fits-all’ approach in view of the country-specific fiscal sustainability considerations embodied in the net expenditure path; recalls, furthermore, that the reform aims to strengthen fiscal sustainability through gradual and tailor-made adjustments complemented by reforms and investments and to promote countercyclical fiscal policies;

Removed13. Laments the fact that only seven Member States have sought an opinion from their relevant independent fiscal institution; regrets that nine Member States did not meet their obligation to conduct political consultations with regional authorities and relevant stakeholders prior to submitting their national plans; further laments the fact that several Member States have not involved their national parliaments in the approval process for the plans and have not reported whether the required consultations with national parliaments took place;

Added21. Acknowledges that the new fiscal rules provide greater flexibility and incentives linked to the investments and national reforms required to address the economic, social and geopolitical challenges facing the EU; acknowledges that financial resources and contributions from national budgets differ from one Member State to another; welcomes the fact that the net expenditure indicator excludes all national co-financing in EU-funded programmes, providing increased fiscal space for Member States to invest in the EU’s common priorities, as laid down in Regulation (EU) 2024/1263, thus helping to strengthen synergies between the EU and national budgets, thereby reducing fragmentation and increasing the overall efficiency of public spending in some areas, such as defence;

Removed14. Observes that five Member States have requested an extension of the adjustment period; notes that the reforms and investments used to justify this extension rely heavily on reforms already approved under the Recovery and Resilience Facility; believes that some of these reforms do not sufficiently meet the requirement to demonstrate their contribution to potential GDP growth;

Added22. Highlights that the debt sustainability analysis (DSA) plays a key role in the reformed EU fiscal rules; is of the opinion that the discretionary role of the Commission in the DSA requires the relevant assessments to be fully transparent, predictable, replicable and stable; calls on the Commission to address possible methodological improvements, such as assessing spillover effects between Member States, and to duly inform Parliament in this regard;

RemovedFiscal stance

Added23. Notes the Commission’s inconsistent application of the fiscal rules framework in the past, and the Member States’ uneven compliance with the rules; stresses that it is essential for the new framework to ensure the equal treatment of the Member States; affirms that a successful framework relies heavily on proper, transparent and effective implementation from the outset, while taking into account the Member States’ starting points and the individual challenges they face; takes note of the changes introduced in the new framework to improve the credibility of the financial sanctions regime;

Removed15. Agrees with the Eurogroup that, given the macroeconomic outlook for 2025, gradual and sustained fiscal consolidation in the euro area continues to be necessary; highlights the need to reduce the high levels of deficit and debt in a way that minimises the impact on growth;

Added24. Encourages the Member States to align the technical definition of their national operational indicator to the European primary net expenditure indicator;

Removed16. Notes that the implementation of the revised governance framework is expected to lead to a contractionary fiscal stance for the euro area as a whole in 2024 and 2025, which is appropriate in light of the macroeconomic outlook and the need to continue to enhance fiscal sustainability and support the ongoing disinflationary process;

Added25. Emphasises the role of Parliament and of independent fiscal authorities in the EU’s economic governance framework; underlines the discretionary power of the Commission in developing the medium-term fiscal-structural plans; emphasises the need for increased scrutiny of the Commission by Parliament and by the European Fiscal Board, as envisioned in Regulation (EU) 2024/1263, and for an increase in the flow of information towards Parliament to enable its effective oversight;

Removed17. Considers that the rigorous application of the fiscal rules themselves is not a sufficient condition for achieving an optimal fiscal stance at all times; calls on the Commission and the Council to propose a mechanism that helps ensure that the cyclical position for the EU as a whole is at all times appropriate to the macroeconomic outlook;