EU Budget Rules for a Stable, Greener Future

European Parliament Resolution – European Semester 2026

The European Parliament has adopted a resolution on the 2026 European Semester, the EU’s main tool for coordinating national economic and budgetary policies. The resolution highlights the following key points:

1. Purpose of the Semester

• The Semester aligns member‑state policies with EU goals, protects macro‑economic stability, and supports a fair transition to a sustainable economy.
• It provides the framework for national and regional partnership plans and for the European Fiscal Board’s monitoring.

2. Economic Outlook (2025‑2027)

• EU GDP growth is expected to be about 1.4 % in 2025 and 2026, slightly below the United States and China.
• Potential growth (the economy’s “healthy” growth rate) will fall from 1.5 % in 2024 to 1.3 % in 2027 in the EU, and from 1.4 % to 1.2 % in the euro area, mainly because the working‑age population is shrinking.
• The euro‑area deficit will rise from 3.1 % of GDP in 2024 to 3.3 % in 2026.
• 12 member states will have deficits above 3 % of GDP in 2027, and 10 are already under an excessive‑deficit procedure.
• The EU’s debt‑to‑GDP ratio is projected to reach 82.8 % in 2025, 83.8 % in 2026 and 84.5 % in 2027, well above the 60 % ceiling set for individual states.
• Inflation peaked at 10.6 % in October 2022 but is now near the European Central Bank’s target; however, it remains high in some countries and hits low‑income households hardest.

3. Investment Gap

• The EU needs an extra €800 billion per year to boost competitiveness and productivity.
• €450 billion of that is earmarked for the energy transition, of which €260 billion should come from the public sector.
• An additional €800 billion is needed for defence under the ReArm Europe Plan/Readiness 2030.
• Current public financing (e.g., the Recovery and Resilience Facility) will end in 2026, leaving a large gap that must be filled by new EU‑level resources and private investment.

4. Fiscal Rules and Governance

• The revised economic‑governance framework uses net expenditure as the main indicator of compliance.
• The Commission has more discretion in setting medium‑term fiscal plans, but the rules must be applied consistently to keep the framework credible.
• The “escape clause” for defence spending has been used by 16 states, allowing temporary increases without immediate cuts or tax hikes.

5. Country‑Specific Recommendations (CSRs)

• CSRs are meant to guide reforms and investment at the national level.
• Between 2019 and 2023, 25.1 % of CSRs showed little or no progress.
• The Commission plans to focus CSRs more on competitiveness, research, and innovation, but fewer are linked to social or climate goals.
• The Commission should clarify how CSRs are chosen and improve monitoring, especially when they affect access to EU funds.

6. Defence and Security

• The EU will provide a €90 billion loan to Ukraine in 2026‑27, financed through EU borrowing.
• The SAFE instrument offers a €150 billion loan facility for member‑state defence investment, but it limits parliamentary oversight.
• Defence spending is a consumptive investment and should not be financed by long‑term debt; coordination across states is needed for costly strategic projects.

7. Call to Action

• Member states must pursue prudent fiscal policies, reduce tax gaps, and strengthen tax enforcement.
• The Commission should present a strategy to meet investment needs beyond 2026, including new EU‑level resources and instruments such as a European Competitiveness Fund.
• The Parliament urges the Commission to send this resolution to the Council and the Commission for further action.