The confederation of states enforces strict budget requirements that member states must follow, but many states are not compliant with these regulations. As a result, reforms are being made to these regulations despite the bleak financial prospects of the EU. There are significant divides among member states, particularly when it comes to fiscal policy. Some countries advocate for strict budget discipline and follow this principle, while others have let their national debt spiral out of control. For example, Italy’s debt is at 137 percent of GDP, while Sweden’s debt is only at 31 percent. Some smaller countries have even lower levels of debt.
Member states are expected to adhere to specific debt and budget thresholds, with a maximum debt of 60 percent of GDP and a budget deficit of no more than 3 percent. Failure to meet these limits could result in financial sanctions from the EU Commission, but so far, no penalties have been imposed on any member state for excessive debt. This lack of enforcement has eroded the credibility of the rules.
In an effort to address these issues, the EU is reforming the Stability and Growth Pact, with new measures to help countries reduce their debt over time. However, there has been criticism of the flexibility offered in these agreements and concerns that heavily indebted countries like France may avoid sanctions. The EU faces challenges in financing ambitious projects such as expanding rail transport and green agriculture, and there is a fear of falling behind economically compared to other global powers like the USA and China.
To attract private capital for these projects, the EU may need to create a capital markets union and ensure solid state finances. The dilemma arises from the conflicting views on austerity measures, with some parties rejecting reforms to the stability pact. In the short term, the EU is funding projects through borrowing, but the long-term sustainability of this approach is uncertain. Ultimately, member states must find ways to comply with debt and budget rules to ensure the EU’s financial stability.