Amidst the prospect of a soft landing and lower interest rates, the European Council unanimously voted in favor of reinstating fiscal safeguards for EU member states after a 4-year pause during the pandemic.

The Stability and Growth Pact – the formal name of the fiscal rulebook – gives the EU the ability to impose monetary fines on member states with debt-to-GDP ratios above 60% and/or budget deficits exceeding -3%. The pact was temporarily waived to allow states to undertake counter-cyclical investments and debt intake during the pandemic and subsequent energy crisis. However, a group of frugal EU countries, led by Germany, has pushed for the reinstatement of these rules.

Certainly, not everyone is ready for a return to the status quo: 13 out of 27 EU countries, including France, Italy, and Greece, currently have sovereign debt ratios above 60%. These nations advocate for a more flexible fiscal regulations model that would permit continued investments in EU priority areas such as defense, green tech, AI, and semiconductors.