Newswires carry the report over the weekend that the European Union has worked out a preliminary agreement on fiscal reform. The plan aims to reduce debt and protect investment in areas such as defence and the “green” transition.
In brief, the agreement introduces gradual fiscal adjustment for countries where government debt exceeds 60% of gross domestic product (GDP), or where the deficit is above 3% of GDP. The preliminary agreement was reached in Brussels late Friday between representatives of the European Commission, the European Parliament and member states in the EU Council. Formal approval will be needed from national governments and the EU assembly to come into effect.
Something to keep an eye on. A reduction in government debt, if that path eventuates, will likely mean less fiscal stimulus and a reduction, at the margin, in the pressure for higher rates. Everything else being equal, which it never is.