Designed to address concerns over excessive debt while fostering investment, the framework aims to ensure that member states engage in responsible fiscal policies without undermining economic growth. While the reforms introduce a more structured and transparent approach to debt and deficit management, they also bring forth complex challenges related to enforcement, economic projections, and the balance between fiscal consolidation and public investment. The success of this framework will depend on how effectively these challenges are managed, as well as the EU’s ability to maintain credibility in its economic governance.

One of the primary concerns surrounding the new fiscal rules is the reliance on overly optimistic economic assumptions in national fiscal plans. Several member states have submitted Medium-Term Fiscal Structural Plans (MTFSPs) that project stronger GDP growth, higher inflation, and increased revenue collection than what the European Commission forecasts. This optimism, while politically convenient, poses a significant risk to the credibility of the fiscal framework. If these projections fail to materialize, countries could find themselves unable to meet the required debt and deficit targets, triggering excessive deficit procedures (EDPs) and forcing sudden corrective measures. The challenge lies in ensuring that economic forecasts align with realistic expectations rather than political ambitions. Hungary, for instance, faced rejection of its fiscal plan due to unrealistic growth projections, illustrating the potential consequences of flawed assumptions.

Another major issue arises from the potential risk of public investment cuts. While the framework explicitly includes safeguards to protect investment, the reality is that countries facing stringent fiscal adjustment requirements may prioritize deficit reduction over long-term economic development. Public investment across the EU remains significantly below pre-pandemic levels, and fiscal consolidation measures may further constrain governments from making necessary expenditures in key sectors such as infrastructure, digitalization, and the green transition. Countries with particularly high debt-to-GDP ratios, such as Italy and Spain, may struggle to reconcile the demands of fiscal discipline with the need to sustain investment-driven growth. Without alternative financing mechanisms, such as stronger EU investment funds or common borrowing instruments, the framework could inadvertently slow economic progress rather than stimulate sustainable development.

Inconsistencies between national fiscal plans and EU guidance further complicate the implementation of the framework. Several governments have submitted fiscal projections that deviate from EU recommendations, leading to uncertainty over enforcement. The Netherlands, for example, projected a debt-to-GDP ratio that far exceeded the Commission’s suggested fiscal path. Instead of revising its plan, the government engaged in negotiations, raising concerns over selective enforcement and the potential for unequal treatment among member states. If the EU allows certain countries to deviate from the fiscal rules while strictly enforcing them on others, it risks undermining the credibility of the entire framework. A consistent and transparent enforcement mechanism is essential to ensure that all member states are held to the same standards, avoiding perceptions of political favoritism or leniency.

The issue of excessive deficit procedures (EDPs) also presents a challenge. While the EU has begun enforcing EDPs for countries exceeding the three percent deficit limit, it remains unclear how debt-based violations will be handled. Some governments have already been placed under corrective procedures, yet countries with significantly high debt levels have not faced similar scrutiny. This selective enforcement raises concerns about the framework’s long-term effectiveness. Delayed action could lead to market instability, as investors may begin questioning the EU’s commitment to fiscal discipline. On the other hand, sudden enforcement of debt-based EDPs could force highly indebted countries into abrupt austerity measures, which may stifle economic recovery and increase social unrest. The EU must strike a careful balance between enforcing compliance and allowing enough flexibility for countries to adjust their fiscal strategies without causing economic disruptions.

A further technical challenge arises from inconsistencies in stock-flow adjustments (SFAs), which measure changes in public debt that are not directly related to budget deficits. Many governments have projected SFAs at levels higher than what EU recommendations suggest, creating uncertainty about the accuracy of fiscal planning. Without a standardized methodology for these calculations, countries may have the ability to manipulate their debt projections to artificially meet fiscal targets. This lack of transparency could weaken the credibility of the EU’s debt sustainability analysis, making it difficult to assess whether countries are genuinely adhering to fiscal rules or merely adjusting projections to avoid penalties. Introducing a uniform approach to SFAs across all member states would enhance the reliability of fiscal assessments and prevent discrepancies that could distort debt evaluations.

The long-term success of the EU’s fiscal framework will depend on how these challenges are addressed. The European Commission must strengthen its oversight of national economic forecasts to prevent unrealistic assumptions from undermining fiscal discipline. Additionally, measures should be taken to ensure that fiscal consolidation does not come at the cost of essential public investments. Establishing an EU-wide investment fund or strategic exemptions for critical spending areas could help maintain economic momentum while ensuring compliance with fiscal rules. Consistent enforcement of excessive deficit procedures is also crucial to preserving the integrity of the framework. If some member states are granted leniency while others face strict corrective measures, the legitimacy of the entire system will be called into question.

Ultimately, the EU’s new fiscal framework represents a significant evolution in economic governance, aiming to strike a delicate balance between stability and growth. However, its implementation must be handled with precision, ensuring that fiscal responsibility does not lead to economic stagnation. By addressing inconsistencies in enforcement, improving transparency in debt projections, and safeguarding public investment, the EU can create a fiscal system that promotes both economic resilience and long-term stability. If these issues are left unresolved, the framework risks becoming another bureaucratic mechanism that fails to deliver on its promises, leaving the EU vulnerable to future economic crises.