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New EU stability pact agreement allows greater spending flexibility

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New EU stability pact agreement allows greater spending flexibility


After hours of negotiations in Brussels EU finance ministers have reached a deal on when and how much their governments can overspend. The new rules allow more flexibility but Luxembourg’s Prime Minister Jean Claude Juncker insisted there would not be a spending free-for-all. Under the new deal spending still must not exceed 3 percent of gross domestic product except in special circumstances.

EU governments will be able to overspend if it is to further the “reunification of Europe.” There is more flexibility too if the money is spent on research or on pension reforms or training the unemployed. The original stability pact was designed to show that all countries that signed up to the Euro could be financially responsible. But it quickly ran into trouble: Two of its key members Germany and France broke the budget deficit limits to try and get their sluggish economies moving. Since then several other member countries have admitted they have also broken the rules on budget deficit limits.
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