By Jan Strupczewski

BRUSSELS (Reuters), – After the pandemic, the European Union discussed how to adapt the rules of the Euro zone that regulate national budgets so they are in line with a new post-pandemic reality. There will be higher public debt as well as the huge cost of going to zero emissions.

These are key aspects of the rules, as they currently stand.

* Governments should keep budget deficits below 3% of GDP. EU finance ministers allow governments time to decrease their budget deficits, if any exceed that limit. A government that ignores these deadlines can face a fine. However, the strong consensus at the core of EU politics makes it unlikely this will ever happen.

* Governments should seek as a rule to keep the part of their budget that does not fluctuate with the economic cycle in balance or in surplus. To reduce any deficits, governments should aim to decrease it by 0.5% GDP each year, in non-cyclical structural terms.

* Public debt should be no higher than 60% of GDP. If the debt is greater than 60%, then it should be reduced annually by one-fifth. This average would take place over three years.

* If a government does not observe such debt reductions it can be disciplined in the same way as with too large a deficit. This has not happened before and is highly unlikely to happen again.

* When determining how much to spend, governments should use a rule that any rise in net spending should not be higher than the economy’s potential growth rate. If the economy grows below its potential government can spend less and if it is increasing above their potential growth rate, they must reduce public spending.

* Euro zone governments have to submit the main assumptions of their budgets for next year to the Commission for vetting that they are in line with EU rules by Oct 15th each year. The Commission may request amendments if a budget draft shows a greater deficit than the government was told.

* The Commission checks every year that euro zone economies are not developing dangerous imbalances, like real estate bubbles, problems in the labour market or big deficits or surpluses on a country’s current account, for example. If the recommendations of the Commission are not followed, the Commission may ask for a country’s corrections. There have never been any fines for government.