A new scheme recently proposed by the European Commission for ensuring Member States' compliance with EU budgetary rules is unlikely to provide Belgium with any fiscal relief — and could potentially sanction even more drastic cuts in the Belgian federal budget.
According to a report published on Thursday by the Federal Planning Bureau, under the proposed EU framework the Belgian Federal Government would be required to cut its budget deficit — which, at 5.1% of annual GDP, is currently the highest in the eurozone — by 1% annually over the next four years.
Under the EU's current system, however, Belgium would be forced to cut its budget by only 0.6% each year over this period.
Moreover, even though the new scheme would allow the Belgian Federal Government to apply to extend the period of fiscal consolidation to seven rather than four years, such an application, even if accepted, would still require Belgium to reduce its deficit by 0.7% annually over seven years: 0.1% more per year than under the current scheme.
Under the bloc's current 'one-size-fits-all' fiscal framework, countries whose debt-to-GDP ratios exceed the EU's legal threshold of 60% are obliged to reduce the amount of debt above this limit by 1/20th each year.
According to the more flexible scheme proposed by the Commission in November last year, however, Member States whose debts exceed this ceiling are (mostly) able to pursue a more tailored, country-specific plan to achieve fiscal compliance. As the EU puts it: "More scope would be given to Member States for the design of their fiscal trajectories."
However, the new framework also contains provisions which entail that, under certain conditions, the mandated budgetary reforms would even more demanding than under the current system. Such conditions include when a Member State is experiencing rapidly rising interest rates, a large overall government debt, and an exceedingly high budget deficit.
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Unfortunately, all of these conditions apply in Belgium's case: its central bank's benchmark ten-year OLO (Obligation Linéaire Ordinaire, or Linear Ordinary Bond) rate has risen precipitously from 0.2% at the end of 2021 to 3.2% at the end of last year; its government debt-to-GDP ratio of 106.3% is the sixth highest in the EU; and its current deficit of 5.1% is not only the highest in the eurozone, but well above the bloc's official 3% ceiling.
The EU's current debt and budgetary limits — neither of which are likely to be altered for the foreseeable future — were enshrined into European law in the Stability and Growth Pact in the late 1990s, but were temporarily suspended during the Covid-19 pandemic. They are scheduled to re-enter into force in 2024, by which point the EU hopes its new scheme will have been approved by Member States and enshrined into EU law.