EU Commission publishes its quarterly economic forecasts
European Commissioner for Economy Paolo Gentiloni attends a news conference on the EU Commission quarterly economic forecast in Brussels, Belgium, July 14, 2022. Reuters

The ongoing reform of EU fiscal rules could give governments more leeway in plans that combine debt cuts with investment and reforms, in exchange for greater accountability, the EU's Economic Commissioner Paolo Gentiloni said on Monday.

Speaking to an insurance conference in Rome, Gentiloni said the European Commission would present proposals on how to reform the rules, called the Stability and Growth Pact, in October.

The rules are meant to safeguard the value of the euro by preventing excessive government borrowing. They say public debt must be below 60% of gross domestic product (GDP) and government deficits below 3% of GDP, and these basics will not change.

But because the pandemic left many countries with debt well above 100% of GDP, with Greece at around 185% and Italy around 150%, debt reduction rules need to change.

"Simplification, stronger national ownership and better enforcement will be the defining features of an improved framework, with the overall objective of supporting debt sustainability and sustainable growth," Gentiloni said.

"One way to do so could be to move towards medium-term macro-fiscal plans that set net expenditure paths over several years and are consistent with the convergence of debt to prudent levels," he said.

Gentiloni said the medium-term plans could include pledges of investment and reform that are in line with the EU's and national goals, like in the plans each government had to prepare to get money from the EU post-pandemic recovery fund.

To make governments more attached to the goals set out in the plans the EU would grant them greater leeway in proposing the debt reduction path, as long as they aim for sustainability.

"Reform and investment commitments could allow for a longer fiscal adjustment period," Gentiloni said, but added that in exchange for the bigger flexibility, governments would then be held accountable for the results.

"A greater ex ante national ownership of the design of fiscal trajectories could be balanced by a stronger ex post enforcement at EU level," he said.

The Commission proposal later in October will then be discussed by EU finance ministers with a view to reaching an agreement on how to reform the rules in the first half of 2023.