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The European Commission has introduced new fiscal rules aimed at promoting growth and financial discipline among member states. The framework, collaboratively agreed upon by EU finance ministers and the Commission, is set to undergo holistic approval from the European Parliament. Key aspects of the rules include a robust model for sovereign debt, emphasis on European objectives to drive real reforms, and a reduction in reliance on European co-financed projects for development spending.
In an article written by Maria Eracleous and published in Kathimerini's Sunday edition, one significant change is the heightened difficulty in utilizing supplementary budgets, a common practice until now. Starting in 2025, the new regulations will require state budgets to align closely with the Commission's guidelines. The stringent criteria for submitting supplementary budgets will compel governments to be more disciplined in their annual budget preparation to avoid the need for additional funding. Supplementary budgets will only be permitted in exceptional cases with objective reasons.
The new fiscal framework excludes investments in projects under the Recovery and Resilience Plan and other EU co-financed programs from the calculation of the fiscal trajectory. This places added pressure on governments to prioritize beneficial investments within the state budget.
According to Michalis Persianis, President of the Fiscal Council, the new rules aim to bring greater discipline and clarity to policy objectives while emphasizing European goals for the environment, climate, social cohesion, and energy security.
In 2024, Cyprus is expected to limit public debt to 74.7% of GDP, a reduction from 81% in 2023 but still exceeding the 60% threshold set by the new stability pact. Finance Minister Makis Kerynos targets reaching the 60% mark in the coming years, with a gradual reduction of 0.5% per annum for countries with debt ratios below 90%. Other projections for 2024 include a growth rate of 2.9%, inflation at 2.5%, and unemployment at 5.8%. The primary surplus is expected to reach 4.3% of GDP compared to 3.9% in 2023.
The new fiscal regulations signal a shift towards financial responsibility and adherence to European objectives, with potential repercussions for countries deviating from the prescribed guidelines.
