Regulation (EU) 2024/1263 of the European Parliament and of the Council of 29 April 2024 on the effective coordination of economic policies and on multilateral budgetary surveillance and repealing Council Regulation (EC) No 1466/97

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 121(6) thereof,

Having regard to the proposal from the European Commission,

After transmission of the draft legislative act to the national parliaments,

Having regard to the opinion of the European Central Bank (1),

Acting in accordance with the ordinary legislative procedure (2),

Whereas:

(1) The coordination of the economic policies of the Member States within the Union, as provided for by the Treaty on the Functioning of the European Union (TFEU), entails compliance with the guiding principles of stable prices, sound public finances and monetary conditions and a sustainable balance of payments.

(2) The Stability and Growth Pact, which initially consisted of Council Regulations (EC) No 1466/97 (3) and (EC) No 1467/97 (4) and the Resolution of the European Council of 17 June 1997 (5), is based on the objective of sound and sustainable government finances as a means of strengthening the conditions for price stability and for strong, sustainable and inclusive growth underpinned by financial stability, thereby supporting the achievement of the Union’s objectives for sustainable growth and employment.

(3) The fiscal governance framework forms part of the European Semester, which also comprises the coordination and surveillance of broader economic and employment policies of the Member States, in accordance with Articles 121 and 148 TFEU, including the European Pillar of Social Rights, and the related country-specific recommendations.

(4) The involvement of national parliaments, social partners, civil society organisations and other relevant stakeholders in the European Semester is key to ensuring national ownership of economic and fiscal policies as well as transparent and inclusive policy-making.

(5) The economic governance framework of the Union should be adapted to better take into account the increased heterogeneity of fiscal positions, public debt and economic challenges, as well as other vulnerabilities across Member States. The strong policy response to the COVID-19 pandemic proved highly effective in mitigating the economic and social consequences of the crisis caused by that pandemic, but resulted in a significant increase in public- and private-sector debt ratios, underscoring the importance of reducing debt ratios and deficits to prudent levels in a gradual, realistic, sustained and growth-friendly manner ensuring leeway for counter-cyclical policies and addressing macroeconomic imbalances, while paying due attention to employment and social objectives. At the same time, the economic governance framework of the Union should be adapted to help address the medium- and long-term challenges facing the Union such as achieving a fair digital and green transition including the climate objectives set out in Regulation (EU) 2021/1119 of the European Parliament and of the Council (6), ensuring energy security, supporting open strategic autonomy, addressing demographic change, strengthening social and economic resilience and sustained convergence, and implementing the Strategic Compass for Security and Defence, all of which require reforms and sustained high levels of investment in the years to come.

(6) The economic governance framework of the Union should promote sound and sustainable public finances and sustainable and inclusive growth and therefore differentiate between Member States by taking into account their public debt and economic challenges and by allowing multi-annual country-specific fiscal paths, while ensuring effective multilateral surveillance and respecting the principle of equal treatment.

(7) Ensuring an appropriate level of public investment is necessary in order to achieve the main objectives of the economic governance framework reform laid down in this Regulation as well as to address current and future priorities of the Union. The implementation of financing instruments such as the cohesion policy funds, which currently comprise the European Regional Development Fund (ERDF) and the Cohesion Fund established by Regulation (EU) 2021/1058 of the European Parliament and of the Council (7), the European Social Fund Plus (ESF+) established by Regulation (EU) 2021/1057 of the European Parliament and of the Council (8) and the Just Transition Fund (JTF) established by Regulation (EU) 2021/1056 of the European Parliament and of the Council (9), under the European Union Recovery Instrument established by Council Regulation (EU) 2020/2094 (10), or under the European instrument for temporary support to mitigate unemployment risks in an emergency established by Council Regulation (EU) 2020/672 (11), could provide lessons for improving the effectiveness and efficiency of investments and employment policies, and for any Union investment instrument that addresses the common priorities of the Union.

(8) The multilateral surveillance procedure set out in Article 121(2), (3) and (4) and Article 148(4) TFEU should monitor the full range of economic and employment developments in each Member State and in the Union as a whole. That includes the detection of macroeconomic imbalances and the prevention and correction of excessive imbalances set out in Regulations (EU) No 1174/2011 (12) and (EU) No 1176/2011 (13) of the European Parliament and of the Council, respectively. For the monitoring of those economic and employment developments, Member States should present information in the form of medium-term fiscal-structural plans covering a period of four or five years, depending on the regular length of the legislative term of the Member State concerned. As part of its integrated analysis of employment and social developments in the context of the European Semester, the Commission assesses risks to upward social convergence in Member States and monitors progress on the implementation of the principles of the European Pillar of Social Rights on the basis of the Social Scoreboard and of the principles of the Social Convergence Framework.

(9) Detailed rules should be laid down regarding the content, submission, assessment, endorsement and monitoring of national medium-term fiscal-structural plans, in order to promote sound and sustainable public finances and sustainable and inclusive growth in the Member States, and resilience through reforms and investments, including those contributing to the common priorities of the Union, and prevent the occurrence of excessive government deficits.

(10) National medium-term fiscal-structural plans should bring together the fiscal policy, structural reforms and investments of each Member State. Those plans should be the cornerstone of the economic governance framework of the Union. Each Member State should present a national medium-term fiscal-structural plan setting out its fiscal path as well as priority public investments and reforms that together ensure sustained and gradual debt reduction and sustainable and inclusive growth, avoiding a pro-cyclical fiscal policy. Those plans should also include broader reforms and investments, including in relation to common priorities of the Union, namely the green transition, including the European Green Deal and the transition to climate neutrality by 2050 in accordance with Regulation (EU) 2021/1119 and through the implementation of the national energy and climate plans submitted pursuant to Regulation (EU) 2018/1999 of the European Parliament and of the Council (14); the digital transition, including the Digital Decade Policy Programme 2030 established by Decision (EU) 2022/2481 of the European Parliament and of the Council (15); social and economic resilience and the implementation of the European Pillar of Social Rights, including the related targets on employment, skills and poverty reduction by 2030; energy security; and the build-up of defence capabilities where applicable including the Strategic Compass for Security and Defence, or subsequent Union acts relevant for those priorities. During the period of operation of the Recovery and Resilience Facility established by Regulation (EU) 2021/241 of the European Parliament and of the Council (16), commitments undertaken in the national recovery and resilience plans should be duly taken into account when national medium-term fiscal-structural plans are drawn up.

(11) The cohesion policy funds are also synchronised with the European Semester. As the long-term investment policy of the Union budget, reforms and investments under those funds should also be duly taken into account when national medium-term fiscal-structural plans are drawn up, in order to ensure consistency and, where appropriate, complementarity.

(12) The submission of a national medium-term fiscal-structural plan should be preceded by a technical dialogue with the Commission to ensure compliance with this Regulation. The assessment of the national medium-term fiscal-structural plans by the Commission should include a summary of that technical dialogue. On the basis of a recommendation from the Commission, the Council should adopt a recommendation setting out the net expenditure path and, as appropriate, endorse the reforms and investments underpinning the possible extension of an adjustment period.

(13) In order to simplify the Union fiscal framework and increase transparency, a single operational indicator anchored in debt sustainability should serve as a basis for setting the fiscal path and for carrying out annual fiscal surveillance for each Member State. That single operational indicator should be based on nationally financed net primary expenditure, that is to say: government expenditure net of interest expenditure, discretionary revenue measures, expenditure on Union programmes fully matched by revenue from Union funds, national expenditure on co-financing of programmes funded by the Union, as well as cyclical elements of unemployment benefit expenditure. In line with the guiding principles that are used by the Commission for classifying transactions as one-offs and other temporary measures, those one-offs and other temporary measures should also be excluded from the net expenditure indicator. That indicator, which is not affected by the operation of automatic stabilisers and other expenditure fluctuations outside the direct control of the government, provides leeway for counter-cyclical macro-economic stabilisation.

(14) To frame the dialogue leading to the submission of national medium-term fiscal-structural plans, the Commission should transmit to Member States with a general government debt exceeding 60 % of GDP or a government deficit exceeding 3 % of GDP, as set out in Article 126(2) TFEU in conjunction with Protocol (No 12) on the excessive deficit procedure annexed to the Treaty on European Union (TEU) and TFEU (‘Protocol (No 12)’), a reference trajectory covering an adjustment period of four years with a possible extension of up to three years. That trajectory should be risk-based, country-specific and anchored in debt sustainability to ensure a more forward-looking approach fit for both current and future challenges.

(15) At the request of a Member State with government debt not exceeding 60 % of GDP and government deficit not exceeding 3 % of GDP, the Commission should transmit guidance in the form of technical information to that Member State.

(16) During the month before the deadline by which the Commission is to transmit a reference trajectory or technical information to a Member State, that Member State should have the possibility to request a technical exchange with the Commission. That technical exchange should provide an opportunity to discuss the latest statistical information available and the economic and fiscal outlook of the Member State concerned, while ensuring equal treatment of Member States.

(17) The multilateral budgetary surveillance framework of the Union is based on statistical data provided by Eurostat, which is responsible, on behalf of the Commission, for ensuring the quality of fiscal data compiled in accordance with the European System of National and Regional Accounts. Eurostat is to establish a framework for Member States’ reporting of statistical data on national co-financing of programmes funded by the Union that are necessary for the implementation of this Regulation and are currently not collected by Eurostat. Until the framework for the collection and provision of such data is established, Member States should be allowed to rely on estimates. The format, scope, frequency and timing of the provision of such data by Member States are to be determined by the relevant Union statistical bodies.

(18) The reference trajectory should ensure that, by the end of the adjustment period, the general government debt is on a plausibly downward trajectory or stays at prudent levels, even under adverse scenarios. In addition, it should ensure that the general government deficit is brought and maintained below 3 % of GDP, while taking into account the fact that Member States could face additional costs after the end of the adjustment period such as costs related to demographic ageing. Finally, it should ensure consistency with the corrective path under Council Regulation (EC) No 1467/97.

(19) To improve the predictability in the outcome of the multilateral budgetary surveillance framework of the Union and reinforce equal treatment between the Member States, the reference trajectory should comply ex ante with a debt sustainability safeguard. That safeguard should ensure in the design phase of the national medium-term fiscal-structural plans that the projected government debt ratio decreases by a minimum annual average. It would act as a minimum requirement for the effort underlying the reference trajectory and the net expenditure path. Due to the specific composition of the outstanding government debt of Greece, a significant amount of deferred interest payments is set to become due in 2033. The related exceptional increase in the general government debt-to-GDP ratio of Greece should therefore not be taken into account in the application of the debt sustainability safeguard.

(20) Risk-based requirements for the reference trajectory are expected to be sufficient to bring government deficit levels well below the reference value of 3 % of GDP. However, in order to make the multilateral budgetary surveillance framework more robust vis-à-vis uncertain developments of macro-fiscal variables, the reference trajectory should also provide for a common resilience margin relative to the deficit reference value referred to in Article 126(2) TFEU in conjunction with Protocol (No 12) or convergence towards that deficit reference value. That common resilience safeguard should ensure the build-up of fiscal buffers for adverse circumstances and shocks, thereby facilitating the conduct of counter-cyclical policies under the Union fiscal framework.

(21) For the first national medium-term fiscal-structural plans, the plausibility of government debt declining in the medium term should be based on the methodology described in the Commission’s Debt Sustainability Monitor 2023. A working group on debt sustainability analysis should explore possible methodological improvements, including on the underlying assumptions. That working group should be composed of experts from the Member States, the Commission and the European Central Bank. The European Fiscal Board and the European Stability Mechanism should be invited by that working group as observers. The competent committee of the European Parliament should have the possibility to invite the Commission to present its methodology in the context of the economic dialogue established by this Regulation.

(22) In order to assess whether further adjustments are required at the end of the four- or five-year implementation period of the national medium-term fiscal-structural plan, the Commission should reassess the situation and put forward a new reference trajectory if the government debt of the Member State is still above 60 % of GDP or its government deficit is higher than 3 % of GDP.

(23) Each national medium-term fiscal-structural plan should mention its status in the context of national procedures, in particular whether it was presented to the national parliament and whether it has been approved by the national parliament. The national medium-term fiscal-structural plan should also indicate whether the national parliament had the opportunity to discuss the Council recommendation on the previous plan and, where relevant, any other Council recommendation or decision, or any Commission warning. If available, the opinion of the independent fiscal institution established in accordance with Council Directive 2011/85/EU (17) should be attached to the national medium-term fiscal-structural plan submitted to the Commission. Prior to the submission of the second and subsequent national medium-term fiscal-structural plan, each Member State should conduct, in accordance with its national legal framework, a consultation of social partners, regional authorities, civil society organisations and other relevant national stakeholders. Information on the consultation of national parliaments and on the consultation process should be included in the national medium-term fiscal-structural plan. Given the tighter schedule envisaged for the preparation of the first national medium-term fiscal-structural plans, Member States could conduct a consultation in the run-up thereto with appropriate deadlines.

(24) In the case of a newly appointed government, a Member State should have the possibility to submit a revised national medium-term fiscal-structural plan to the Commission. If there are objective circumstances preventing the implementation of a national medium-term fiscal-structural plan, a Member State should have the possibility of requesting to submit a revised plan to the Commission no later than 12 months before the end of the current plan.

(25) Where Member States use assumptions in their national medium-term fiscal-structural plans that differ from the medium-term government debt projection framework, they should explain and duly justify the differences in a transparent manner and based on sound economic arguments in the technical dialogue and in their national medium-term fiscal-structural plans.

(26) Where the Council considers that the revised national medium-term fiscal-structural plan of a Member State does not comply with the requirements of this Regulation, the Council should recommend, as a rule, the original reference trajectory that had been previously transmitted by the Commission as the net expenditure path.

(27) In order to allow for a proper interaction between the common Union framework and national budgetary frameworks, the Commission should base its assessment of Member States’ compliance with their respective net expenditure paths as set by the Council only on net expenditure developments. Member States should be able to set their national budgetary objectives in terms of a different indicator, such as the structural balance if this is required by their national budgetary framework.