At a time when populist parties are once again on the rise, globally but in the EU in particular, as testified by the recent victory by Geert Wilders in the latest Dutch general election, the EU has decided to respond with two major reforms.
First, the gathering of the Finance Ministers of EU countries, Ecofin, approved the reform of the Stability and Growth Pact last week, which encompasses the fiscal rules for EU member states. Given the impact of the crises of the pandemic and the war in Ukraine, with its associated energy crisis, the fiscal position of many countries has become precarious, with high fiscal deficits and public (and private) debts. In January, the old and stringent fiscal rules – summarised in the so call “Fiscal Compact”- were supposed to return in place. Instead, EU member states have agreed to a new set of fiscal rules.
The agreement, spearheaded by Germany and France, foresees the adoption of bilateral agreements between the EU Commission and each member state for a sustainable reduction of fiscal deficits and public debts over a period of 4 to 7 years. The old parameters (deficits no higher than 3% of GDP, debt no higher than 60% of GDP) remain in place, with additional safeguards. Countries with high debt levels (above 90% of GDP) and in “excessive deficit procedure” will have to reduce their deficit by 0.5% a year and debt by 1% a year.
Additionally, they will have to keep a “fiscal buffer” equal to 1.5% of GDP – i.e. they will have to bring their deficit to 1.5% of GDP. France (and to some extent Italy) have obtained that for the first three years (2025-27), their debt-servicing costs will not be included in the calculation of the so-called “structural deficit,” so as to reduce the amount of fiscal adjustment needed to be made. Apart from this, it is quite obvious that Germany won the battle, while allowing some additional flexibility to other member states.
On the other front, the EU has also revised its immigration rules, at a time when immigration into Europe is causing political troubles to several countries including France, Italy and the UK. In France, a new immigration law has led to the resignation of a minister of Macron’s government, since Le Pen’s party has also approved the new measures. Italy and the UK seem to be allied in the fight against illegal immigration, with solutions being externalised to Albania and Rwanda respectively, during a time when legal immigration is reaching an all-time high.
The new Pact on Migration and Asylum will keep the archaic Dublin rules in place, but foresees compensation mechanisms for those countries that refuse to host their quota of migrants who are temporarily placed in countries of first arrival (typically Greece, Italy, and Spain). They will have to pay up to 20,000 EUR for every migrant who they are not accepting to be relocated in their territory. The EU will establish new sites, located in the outskirts of the Union, in which migrants will be placed while waiting for an evaluation of their refugee status (which will be completed in 12 weeks). These new rules are not the panacea that Metsola and Von Der Layen are flagging, but are a step forward compared to the old regime.
These are two concrete examples of how the 27-member elephant that is the EU can still move when required, to react to the existential threats that it is still facing.
