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New European Union fiscal rules entered into force on 30 April 2024 with the aim of keeping budget deficits below 3% of GDP and public debts below 60%. The cornerstone of the new framework is a country-specific debt sustainability analysis (DSA), which explicitly considers the drivers of public debt. This is a great improvement over the earlier fiscal rules, which were based on simplifying assumptions.  

However, the new framework also contains numerical safeguards to ensure a minimum pace of debt and deficit reduction. These might overwrite the DSA-based requirements and could undermine the rationale for the new rules and the incentives for compliance. The safeguards could also hold back increases in public investment.

In a new Bruegel policy brief, we quantified the fiscal adjustment requirements under the new framework and have made recommendations on how to address loose ends in the framework when it is first implemented later this year. The good news is that numerical safeguards do not alter fiscal trajectories now – with the main exception of Finland.  

For Finland, the DSA would require a structural primary surplus of 1% of GDP by 2031, but the debt safeguard, which necessitates an average 0.5% of GDP annual debt reduction for Finland by 2031, raises the target to 3.3%, the largest among EU countries. We will learn only in the autumn whether the unreasonable debt safeguard requirement will really apply, or the more sensible DSA requirement will guide Finnish fiscal policy.

A main concern is whether the new rules will unduly constrain public investments – if so, we recommend a new EU facility to foster such investments.

For more on the topic of fiscal rules, read  'The implications of the European Union’s new fiscal rules' by Zsolt Darvas, Lennard Welslau and Jeromin Zettelmeyer.