EU Fiscal Rules 2.0: What Greece Needs to Know About the New Spending Framework

The European Union has overhauled its fiscal governance framework, which sets the rules for how member states can spend, borrow, and manage public debt—a reform officially in force since April 2024. The changes are already shaping Greece’s budget and policy planning.

The core of the reform shifts from traditional deficit and debt “numeric targets” to net primary expenditure trajectories and sustainable debt reduction paths. This approach balances investment and reform needs with fiscal discipline.

How the New Rules Work

The central metric is net primary expenditure—the bulk of public spending, excluding debt interest payments and certain EU-funded items. This now serves as the real benchmark for fiscal policy monitoring.

Each member state submits a medium-term (4-year, extendable to 7-year) fiscal-structural plan, outlining:

• the trajectory of net primary expenditure,
• commitments for structural reforms (pensions, labor market, administration),
• and investment priorities.

The European Commission evaluates and approves these trajectories, which become legally binding, ensuring downward debt trends and deficit control below 3% of GDP.

Three Key Innovations

According to Greece’s Parliamentary Budget Office (PBO), the framework introduces:

1. Focus on net primary expenditure rather than abstract deficit/debt limits, with country-specific, transparent trajectories. Traditional Maastricht limits (60% debt, 3% deficit) remain, but are reinforced by safeguards for gradual debt reduction.
2. Medium-term adjustment plans, featuring gradual improvement of structural balances and commitments for reforms and strategic investments.
3. Control Account, a new tool monitoring yearly deviations from agreed expenditure paths; the Commission can trigger corrective measures if deviations exceed thresholds (~0.3% GDP annually, 0.6% cumulatively).

This replaces the older framework that relied mostly on numeric ceilings without tailored medium-term guidance.

Flexibility and Fiscal Space

Unlike before, overperforming fiscal targets no longer automatically allow additional spending or tax cuts:

• Extra fiscal space can only be used to reduce debt or build fiscal buffers for economic slowdowns.
• Permanent tax reliefs or public spending increases are only permitted if backed by permanent revenue-enhancing measures (DRMs), e.g., expanding the tax base, rate adjustments.

This mechanism gives Greece more predictable but closely monitored fiscal policy, especially given its still-high debt levels.

Implications for Greece

Greece has already submitted its medium-term fiscal plan under the new rules and received recommendations from the EU Council for the agreed net expenditure path.

Key points for Greece:

• Net expenditure grew slightly post-2024 but remains compliant with cumulative EU targets, factoring in national escape clauses (e.g., defense spending).
• This allows the implementation of permanent tax cuts and strategic spending announced at events like the Thessaloniki International Fair (TIF), without violating EU fiscal commitments.

Additionally, the national escape clause and targeted investment flexibility (e.g., defense, green transition) provide room for policy maneuvering while staying within EU fiscal rules.

The new EU fiscal framework aims to balance fiscal sustainability with investment and reform flexibility.

For Greece, this translates to:

• more predictable, country-specific fiscal management,
• commitments to net expenditure paths,
• oversight supporting debt reduction and growth, while limiting uncontrolled fiscal deviations.

Source: pagenews.gr