(1)

The coordination of the economic policies of the Member States within the Union, as provided for by the Treaty on the Functioning of the European Union (TFEU), entails compliance with the guiding principles of stable prices, sound public finances and monetary conditions and a sustainable balance of payments.

(2)

The Stability and Growth Pact, which initially consisted of Council Regulations (EC) No 1466/97 (3) and (EC) No 1467/97 (4) and the Resolution of the European Council of 17 June 1997 (5), is based on the objective of sound and sustainable government finances as a means of strengthening the conditions for price stability and for strong, sustainable and inclusive growth underpinned by financial stability, thereby supporting the achievement of the Union’s objectives for sustainable growth and employment.

(3)

The fiscal governance framework forms part of the European Semester, which also comprises the coordination and surveillance of broader economic and employment policies of the Member States, in accordance with Articles 121 and 148 TFEU, including the European Pillar of Social Rights, and the related country-specific recommendations.

(4)

The involvement of national parliaments, social partners, civil society organisations and other relevant stakeholders in the European Semester is key to ensuring national ownership of economic and fiscal policies as well as transparent and inclusive policy-making.

(5)

The economic governance framework of the Union should be adapted to better take into account the increased heterogeneity of fiscal positions, public debt and economic challenges, as well as other vulnerabilities across Member States. The strong policy response to the COVID-19 pandemic proved highly effective in mitigating the economic and social consequences of the crisis caused by that pandemic, but resulted in a significant increase in public- and private-sector debt ratios, underscoring the importance of reducing debt ratios and deficits to prudent levels in a gradual, realistic, sustained and growth-friendly manner ensuring leeway for counter-cyclical policies and addressing macroeconomic imbalances, while paying due attention to employment and social objectives. At the same time, the economic governance framework of the Union should be adapted to help address the medium- and long-term challenges facing the Union such as achieving a fair digital and green transition including the climate objectives set out in Regulation (EU) 2021/1119 of the European Parliament and of the Council (6), ensuring energy security, supporting open strategic autonomy, addressing demographic change, strengthening social and economic resilience and sustained convergence, and implementing the Strategic Compass for Security and Defence, all of which require reforms and sustained high levels of investment in the years to come.

(6)

The economic governance framework of the Union should promote sound and sustainable public finances and sustainable and inclusive growth and therefore differentiate between Member States by taking into account their public debt and economic challenges and by allowing multi-annual country-specific fiscal paths, while ensuring effective multilateral surveillance and respecting the principle of equal treatment.

(7)

Ensuring an appropriate level of public investment is necessary in order to achieve the main objectives of the economic governance framework reform laid down in this Regulation as well as to address current and future priorities of the Union. The implementation of financing instruments such as the cohesion policy funds, which currently comprise the European Regional Development Fund (ERDF) and the Cohesion Fund established by Regulation (EU) 2021/1058 of the European Parliament and of the Council (7), the European Social Fund Plus (ESF+) established by Regulation (EU) 2021/1057 of the European Parliament and of the Council (8) and the Just Transition Fund (JTF) established by Regulation (EU) 2021/1056 of the European Parliament and of the Council (9), under the European Union Recovery Instrument established by Council Regulation (EU) 2020/2094 (10), or under the European instrument for temporary support to mitigate unemployment risks in an emergency established by Council Regulation (EU) 2020/672 (11), could provide lessons for improving the effectiveness and efficiency of investments and employment policies, and for any Union investment instrument that addresses the common priorities of the Union.

(8)

The multilateral surveillance procedure set out in Article 121(2), (3) and (4) and Article 148(4) TFEU should monitor the full range of economic and employment developments in each Member State and in the Union as a whole. That includes the detection of macroeconomic imbalances and the prevention and correction of excessive imbalances set out in Regulations (EU) No 1174/2011 (12) and (EU) No 1176/2011 (13) of the European Parliament and of the Council, respectively. For the monitoring of those economic and employment developments, Member States should present information in the form of medium-term fiscal-structural plans covering a period of four or five years, depending on the regular length of the legislative term of the Member State concerned. As part of its integrated analysis of employment and social developments in the context of the European Semester, the Commission assesses risks to upward social convergence in Member States and monitors progress on the implementation of the principles of the European Pillar of Social Rights on the basis of the Social Scoreboard and of the principles of the Social Convergence Framework.

(9)

Detailed rules should be laid down regarding the content, submission, assessment, endorsement and monitoring of national medium-term fiscal-structural plans, in order to promote sound and sustainable public finances and sustainable and inclusive growth in the Member States, and resilience through reforms and investments, including those contributing to the common priorities of the Union, and prevent the occurrence of excessive government deficits.

(10)

National medium-term fiscal-structural plans should bring together the fiscal policy, structural reforms and investments of each Member State. Those plans should be the cornerstone of the economic governance framework of the Union. Each Member State should present a national medium-term fiscal-structural plan setting out its fiscal path as well as priority public investments and reforms that together ensure sustained and gradual debt reduction and sustainable and inclusive growth, avoiding a pro-cyclical fiscal policy. Those plans should also include broader reforms and investments, including in relation to common priorities of the Union, namely the green transition, including the European Green Deal and the transition to climate neutrality by 2050 in accordance with Regulation (EU) 2021/1119 and through the implementation of the national energy and climate plans submitted pursuant to Regulation (EU) 2018/1999 of the European Parliament and of the Council (14); the digital transition, including the Digital Decade Policy Programme 2030 established by Decision (EU) 2022/2481 of the European Parliament and of the Council (15); social and economic resilience and the implementation of the European Pillar of Social Rights, including the related targets on employment, skills and poverty reduction by 2030; energy security; and the build-up of defence capabilities where applicable including the Strategic Compass for Security and Defence, or subsequent Union acts relevant for those priorities. During the period of operation of the Recovery and Resilience Facility established by Regulation (EU) 2021/241 of the European Parliament and of the Council (16), commitments undertaken in the national recovery and resilience plans should be duly taken into account when national medium-term fiscal-structural plans are drawn up.

(11)

The cohesion policy funds are also synchronised with the European Semester. As the long-term investment policy of the Union budget, reforms and investments under those funds should also be duly taken into account when national medium-term fiscal-structural plans are drawn up, in order to ensure consistency and, where appropriate, complementarity.

(12)

The submission of a national medium-term fiscal-structural plan should be preceded by a technical dialogue with the Commission to ensure compliance with this Regulation. The assessment of the national medium-term fiscal-structural plans by the Commission should include a summary of that technical dialogue. On the basis of a recommendation from the Commission, the Council should adopt a recommendation setting out the net expenditure path and, as appropriate, endorse the reforms and investments underpinning the possible extension of an adjustment period.

(13)

In order to simplify the Union fiscal framework and increase transparency, a single operational indicator anchored in debt sustainability should serve as a basis for setting the fiscal path and for carrying out annual fiscal surveillance for each Member State. That single operational indicator should be based on nationally financed net primary expenditure, that is to say: government expenditure net of interest expenditure, discretionary revenue measures, expenditure on Union programmes fully matched by revenue from Union funds, national expenditure on co-financing of programmes funded by the Union, as well as cyclical elements of unemployment benefit expenditure. In line with the guiding principles that are used by the Commission for classifying transactions as one-offs and other temporary measures, those one-offs and other temporary measures should also be excluded from the net expenditure indicator. That indicator, which is not affected by the operation of automatic stabilisers and other expenditure fluctuations outside the direct control of the government, provides leeway for counter-cyclical macro-economic stabilisation.

(14)

To frame the dialogue leading to the submission of national medium-term fiscal-structural plans, the Commission should transmit to Member States with a general government debt exceeding 60 % of GDP or a government deficit exceeding 3 % of GDP, as set out in Article 126(2) TFEU in conjunction with Protocol (No 12) on the excessive deficit procedure annexed to the Treaty on European Union (TEU) and TFEU (‘Protocol (No 12)’), a reference trajectory covering an adjustment period of four years with a possible extension of up to three years. That trajectory should be risk-based, country-specific and anchored in debt sustainability to ensure a more forward-looking approach fit for both current and future challenges.

(15)

At the request of a Member State with government debt not exceeding 60 % of GDP and government deficit not exceeding 3 % of GDP, the Commission should transmit guidance in the form of technical information to that Member State.

(16)

During the month before the deadline by which the Commission is to transmit a reference trajectory or technical information to a Member State, that Member State should have the possibility to request a technical exchange with the Commission. That technical exchange should provide an opportunity to discuss the latest statistical information available and the economic and fiscal outlook of the Member State concerned, while ensuring equal treatment of Member States.

(17)

The multilateral budgetary surveillance framework of the Union is based on statistical data provided by Eurostat, which is responsible, on behalf of the Commission, for ensuring the quality of fiscal data compiled in accordance with the European System of National and Regional Accounts. Eurostat is to establish a framework for Member States’ reporting of statistical data on national co-financing of programmes funded by the Union that are necessary for the implementation of this Regulation and are currently not collected by Eurostat. Until the framework for the collection and provision of such data is established, Member States should be allowed to rely on estimates. The format, scope, frequency and timing of the provision of such data by Member States are to be determined by the relevant Union statistical bodies.

(18)

The reference trajectory should ensure that, by the end of the adjustment period, the general government debt is on a plausibly downward trajectory or stays at prudent levels, even under adverse scenarios. In addition, it should ensure that the general government deficit is brought and maintained below 3 % of GDP, while taking into account the fact that Member States could face additional costs after the end of the adjustment period such as costs related to demographic ageing. Finally, it should ensure consistency with the corrective path under Council Regulation (EC) No 1467/97.

(19)

To improve the predictability in the outcome of the multilateral budgetary surveillance framework of the Union and reinforce equal treatment between the Member States, the reference trajectory should comply ex ante with a debt sustainability safeguard. That safeguard should ensure in the design phase of the national medium-term fiscal-structural plans that the projected government debt ratio decreases by a minimum annual average. It would act as a minimum requirement for the effort underlying the reference trajectory and the net expenditure path. Due to the specific composition of the outstanding government debt of Greece, a significant amount of deferred interest payments is set to become due in 2033. The related exceptional increase in the general government debt-to-GDP ratio of Greece should therefore not be taken into account in the application of the debt sustainability safeguard.

(20)

Risk-based requirements for the reference trajectory are expected to be sufficient to bring government deficit levels well below the reference value of 3 % of GDP. However, in order to make the multilateral budgetary surveillance framework more robust vis-à-vis uncertain developments of macro-fiscal variables, the reference trajectory should also provide for a common resilience margin relative to the deficit reference value referred to in Article 126(2) TFEU in conjunction with Protocol (No 12) or convergence towards that deficit reference value. That common resilience safeguard should ensure the build-up of fiscal buffers for adverse circumstances and shocks, thereby facilitating the conduct of counter-cyclical policies under the Union fiscal framework.

(21)

For the first national medium-term fiscal-structural plans, the plausibility of government debt declining in the medium term should be based on the methodology described in the Commission’s Debt Sustainability Monitor 2023. A working group on debt sustainability analysis should explore possible methodological improvements, including on the underlying assumptions. That working group should be composed of experts from the Member States, the Commission and the European Central Bank. The European Fiscal Board and the European Stability Mechanism should be invited by that working group as observers. The competent committee of the European Parliament should have the possibility to invite the Commission to present its methodology in the context of the economic dialogue established by this Regulation.

(22)

In order to assess whether further adjustments are required at the end of the four- or five-year implementation period of the national medium-term fiscal-structural plan, the Commission should reassess the situation and put forward a new reference trajectory if the government debt of the Member State is still above 60 % of GDP or its government deficit is higher than 3 % of GDP.

(23)

Each national medium-term fiscal-structural plan should mention its status in the context of national procedures, in particular whether it was presented to the national parliament and whether it has been approved by the national parliament. The national medium-term fiscal-structural plan should also indicate whether the national parliament had the opportunity to discuss the Council recommendation on the previous plan and, where relevant, any other Council recommendation or decision, or any Commission warning. If available, the opinion of the independent fiscal institution established in accordance with Council Directive 2011/85/EU (17) should be attached to the national medium-term fiscal-structural plan submitted to the Commission. Prior to the submission of the second and subsequent national medium-term fiscal-structural plan, each Member State should conduct, in accordance with its national legal framework, a consultation of social partners, regional authorities, civil society organisations and other relevant national stakeholders. Information on the consultation of national parliaments and on the consultation process should be included in the national medium-term fiscal-structural plan. Given the tighter schedule envisaged for the preparation of the first national medium-term fiscal-structural plans, Member States could conduct a consultation in the run-up thereto with appropriate deadlines.

(24)

In the case of a newly appointed government, a Member State should have the possibility to submit a revised national medium-term fiscal-structural plan to the Commission. If there are objective circumstances preventing the implementation of a national medium-term fiscal-structural plan, a Member State should have the possibility of requesting to submit a revised plan to the Commission no later than 12 months before the end of the current plan.

(25)

Where Member States use assumptions in their national medium-term fiscal-structural plans that differ from the medium-term government debt projection framework, they should explain and duly justify the differences in a transparent manner and based on sound economic arguments in the technical dialogue and in their national medium-term fiscal-structural plans.

(26)

Where the Council considers that the revised national medium-term fiscal-structural plan of a Member State does not comply with the requirements of this Regulation, the Council should recommend, as a rule, the original reference trajectory that had been previously transmitted by the Commission as the net expenditure path.

(27)

In order to allow for a proper interaction between the common Union framework and national budgetary frameworks, the Commission should base its assessment of Member States’ compliance with their respective net expenditure paths as set by the Council only on net expenditure developments. Member States should be able to set their national budgetary objectives in terms of a different indicator, such as the structural balance if this is required by their national budgetary framework.

(28)

The Commission’s assessment of the national medium-term fiscal-structural plans should examine in particular the plausibility of the macroeconomic and fiscal assumptions, to the extent that they differ from those underlying the reference trajectory. In particular, the debt projections at unchanged policy to be included in the plan should be comparable with the projections of the Commission.

(29)

In order to ensure the implementation of the national medium-term fiscal-structural plans, the Commission and the Council should monitor the reforms and investments included in those plans under the European Semester, based on the annual progress reports submitted by the Member States, and in accordance with Articles 121 and 148 TFEU. To that effect, they should engage in an economic dialogue with the European Parliament.

(30)

The European Parliament should be duly involved in a regular and structured way in the European Semester in order to increase transparency, accountability and ownership for the decisions taken in the context of the European Semester. The President of the Council and the Commission should regularly inform the European Parliament of the results of the multilateral surveillance pursuant to this Regulation. Information to be provided in the context of this Regulation should be prepared and transmitted by the Commission to the Council, and should be made available to the European Parliament without undue delay.

(31)

To ensure a more gradual debt reduction, the adjustment period can be extended by a maximum of three years if the Member State underpins its national medium-term fiscal-structural plan with a set of verifiable and time-bound reforms and investments that, taken altogether, as a general rule, are growth- and resilience-enhancing; support fiscal sustainability; address the common priorities of the Union; address relevant country-specific recommendations under the European Semester, including, where applicable, recommendations issued under the macroeconomic imbalance procedure, as well as the country-specific investment priorities, without leading to a reduction in the level of nationally-financed public investment over the period of the plan, compared to the medium-term level before the start of the plan, taking into account the scope and scale of the country-specific challenges.

(32)

The set of reforms and investments underpinning an extension of the adjustment period should be consistent with commitments included in the approved recovery and resilience plan of the Member State concerned during the period of operation of the Recovery and Resilience Facility and the Partnership Agreement agreed under the Multiannual Financial Framework. Where recovery and resilience plans include ambitious reforms and investments, in particular with regard to economic growth and fiscal sustainability over the medium term, they should be considered as complying with the requirements for the extension of the adjustment period for the first national medium-term fiscal-structural plans.

(33)

The set of reforms and investments set out in the national medium-term fiscal-structural plans should be aligned with the common priorities of the Union, which includes achieving: a fair green and digital transition, including consistency with the climate objectives set out in Regulation (EU) 2021/1119; social and economic resilience, including the European Pillar of Social Rights; energy security; and, where necessary, the build-up of defence capabilities. The Commission should pay particular attention to those priorities in its assessment of the national medium-term fiscal-structural plans. That set of reforms and investments should also be consistent with the implementation of the national strategies determined by the Member State concerned to address those Union priorities.

(34)

With a view to fostering growth-friendly fiscal consolidation strategies, the impact of reforms and investments, once implemented under the national medium-term fiscal-structural plans, should be duly taken into account in the design of subsequent plans. Particular attention should be paid to the impact on fiscal sustainability through future public revenue, expenditure and potential growth, as well as the contribution to the common priorities of the Union, based on sound and data-driven economic evidence.

(35)

Where a Member State fails to satisfactorily comply with the time-bound set of reforms and investments underpinning the more gradual net expenditure path as set by the Council by the specified deadline, the Council, on a recommendation from the Commission, should be able to recommend to shorten the extension of the adjustment period, that is to say to steepen the annual adjustment effort, unless there are objective circumstances preventing the implementation by the initial deadline.

(36)

The Commission should set up a control account for each Member State to keep track of annual and cumulative upward and downward deviations of the net expenditure observed from the net expenditure path as set by the Council. The control account should not record deviations as long as escape clauses remain activated. In line with Article 2(3) of Regulation (EC) No 1467/97, when preparing the report pursuant to Article 126(3) TFEU, the Commission should take into account as relevant factors the progress in the implementation of reforms and investments, including, in particular, policies to implement the common growth and employment strategy of the Union, and give particular consideration to financial contributions to achieve the common priorities of the Union as laid down in this Regulation.

(37)

Independent fiscal institutions have proven their capacity to foster fiscal discipline and strengthen the credibility of Member States’ public finances. In order to enhance national ownership, the advisory role of independent fiscal institutions should be maintained in the reformed economic governance framework of the Union, with a view to gradually building up their capacities.

(38)

A permanent and more independent European Fiscal Board should play a more prominent advisory role in the economic governance framework of the Union. It should continue to evaluate the implementation of the Stability and Growth Pact, assess the prospective fiscal stance for the euro area as a whole, and provide advice to the Commission and the Council, while respecting the Commission’s role and prerogatives established in the TEU and TFEU. Its independence and access to information should be improved. The Council and the European Parliament should be consulted in the appointment process of its Chair and Members of the Board. Those appointments should, to the extent possible, ensure an appropriate geographical and gender balance.

(39)

When providing an opinion on the draft budgetary plans submitted pursuant to Regulation (EU) No 473/2013 of the European Parliament and of the Council (18), the Commission should assess whether the draft budgetary plans are consistent with the net expenditure paths as set by the Council pursuant to this Regulation.

(40)

In the case of major shocks to the euro area or to the Union as a whole, it is necessary to have a general escape clause to be able to deal with a severe economic downturn in the euro area or the Union as a whole by allowing for a deviation from the net expenditure path as set by the Council, provided that such deviation does not endanger fiscal sustainability over the medium term. The triggering and extension of the general escape clause is to be subject to a Council recommendation, which the Council should endeavour to adopt within four weeks of a Commission recommendation. The European Fiscal Board should deliver an opinion on the extension of the general escape clause.

(41)

In addition to the general escape clause, there should also be a country-specific escape clause to allow a deviation from the net expenditure path as set by the Council where exceptional circumstances, such as unpredictable exogenous events that are outside the control of the Member State, have a major impact on the public finances of the Member State and require counter-cyclical fiscal measures, provided that such deviation does not endanger fiscal sustainability over the medium term. The triggering and extension of country-specific escape clauses is to be subject to a Council recommendation, which the Council should endeavour to adopt within four weeks of a Commission recommendation, taking into account the request of the Member State concerned to trigger or extend the country-specific escape clause.

(42)

This Regulation is part of a package together with Council Regulation (EU) 2024/1264 (19) and Council Directive (EU) 2024/1265 (20). Together, these three legislative acts (hereinafter jointly referred to as ‘the economic governance framework reform’) reform the economic governance framework of the Union, incorporating into Union law the substance of Title III (Fiscal Compact) of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (21) of 2 March 2012 (the ‘TSCG’), in accordance with Article 16 of that Treaty. By building on the experience of the implementation of the TSCG by the Member States, the economic governance framework reform retains the Fiscal Compact’s medium-term orientation as a tool to achieve budgetary discipline and growth promotion. The economic governance framework reform includes a strengthened country-specific dimension aimed at enhancing national ownership, including by maintaining the advisory role of independent fiscal institutions, which draws essentially on the Fiscal Compact’s common principles on national fiscal correction mechanisms proposed by the Commission in its communication of 20 June 2012 in accordance with Article 3(2) TSCG. The analysis of expenditure net of discretionary revenue measures for the overall assessment of compliance required by the Fiscal Compact is set out in this Regulation. As in the Fiscal Compact, temporary deviations from the medium-term plan are only permitted in exceptional circumstances in accordance with this Regulation and in line with the provisions on the control account. In a similar vein to the Fiscal Compact, in the event of significant deviations from the medium-term plan, measures should be implemented to correct the deviations over a defined period. The economic governance framework reform strengthens fiscal surveillance and enforcement procedures to deliver on the commitment of promoting sound and sustainable public finances and sustainable and inclusive growth. The economic governance framework reform thus retains the fundamental objectives of budgetary discipline and debt sustainability set out in the Fiscal Compact.

(43)

In order to ensure the effective implementation and appropriate monitoring of this Regulation, the Commission should provide timely guidance, after requesting an opinion from the Economic and Financial Committee, on the information to be provided by Member States in their national medium-term fiscal-structural plans and in their annual progress reports. That guidance should be made public.

(44)

Multilateral surveillance should be based on high quality and independent statistics produced in accordance with the principles laid down in Regulation (EC) No 223/2009 of the European Parliament and of the Council (22).

(45)

Since the objectives of this Regulation to ensure effective coordination of economic policies and multilateral budgetary surveillance, cannot be sufficiently achieved by the Member States, but can rather, by reason of the scale or effects of the coordination and surveillance, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 TEU. In accordance with the principle of proportionality as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives.

(46)

In view of the existing deadline under the Stability and Growth Pact, this Regulation should enter into force as a matter of urgency on the day of its publication in the Official Journal of the European Union,