ESM Reform Expected to Bring Financial Stability to the EU, But Some Member States Aim to Keep Monitoring at Bay

In response to statements made by Petteri Orpo, MEP Nils Torvalds believes that the EU Commission will not categorize heavily indebted large EU member states as in need of observation. This is despite the European Parliament’s recent approval of the reform of the EU’s financial rules after years of work on the Stability and Growth Pact. The negotiators reached a preliminary agreement in February, which was now approved by the Parliament.

The reform maintains acceptable debt and deficit levels for EU countries but aims to simplify and improve compliance with the rules. Each member country will have a net spending path prepared by the EU Commission based on structural factors. There are different rules for how quickly debt must be reduced based on the debt ratio. If debt exceeds 90 percent of GDP, it must be reduced by one percentage point annually. Countries with 60–90 percent debt ratio have a lower adjustment rate of 0.5 percentage points.

Member countries facing excessive debt or deficits can request a dialogue with the Commission before adjustments are instructed. This allows the country to explain its situation better. However, Finnish Prime Minister Petteri Orpo and Finance Minister Riikka Purra have emphasized the importance of avoiding EU monitoring, but MEP Nils Torvalds is skeptical about this approach and questions why larger member states seem to evade such scrutiny.

The public debt to GDP ratio was highest in Greece at 166 percent in the third quarter of 2023, followed closely by Italy, France, Spain, Belgium, and Portugal. Eero Heinäluoma, leader of the Social Democrats, is pleased with the new financial rules and believes they provide a more realistic and acceptable path for member states to follow. However, before it takes effect, still needs to be approved by Council Member States