While upcoming negotiations to reform EU fiscal deficit and sovereign debt rules will trigger disputes between Northern and Southern member states, a compromise is likely. The main risk moving forward is that the new rules are too vague, which could contribute to future debt crises. German Finance Minister Christian Lindner on Jan. 30 said that his government is skeptical of some of the European Commission's plans to reform the EU Stability and Growth Pact, which establishes fiscal deficit and sovereign debt limits for EU countries. In a press conference with the European economy commissioner, Paolo Gentiloni, Lindner said that "the proposal of the European Commission has not yet acknowledged our concerns," and that "we have our doubts that the proposal of the European Commission will lead to a reliable path to debt reduction." According to Lindner "we would like to keep a multilateral, rule-based approach instead of bilateral negotiations between the European Commission and member states."

• The Stability and Growth Pact is an agreement between the 27 members of the European Union to pursue sound public finances to ensure the stability and sustainability of the bloc's economic, financial and monetary union. While the Stability and Growth Pact gives the European Commission (the bloc's executive arm) and the Council of the European Union (which represents the 27 member states) the power to oversee member states' fiscal policies and impose sanctions on countries not following the rules, the pact's enforcement has traditionally been inconsistent because of the politicization of both the supervision and the sanctions. 
• The European Commission suspended the application of the Stability and Growth Pact in 2020 so that EU governments could increase their public spending to cope with the COVID-19 pandemic. In November 2022, Brussels unveiled a proposal to reform the Stability and Growth Pact before it is reintroduced in 2024. The proposal preserves the Stability and Growth Pact's traditional requirement that EU countries keep their sovereign debt below 60% of GDP and their fiscal deficit below 3% of GDP, but also introduces a more gradual fiscal adjustment process that is meant to reflect the economic conditions in each country and focus on long-term debt sustainability as opposed to more immediate debt-reduction goals.

The reform of the Stability and Growth Pact will be one of the main political battles in the bloc in 2023 and will reignite north-south disputes. Southern European countries (where debt levels tend to be higher) broadly support Brussels' plan because it introduces a more flexible approach to debt reduction and considers the specific economic and political circumstances in each individual member state. For example, these countries argue that certain spending areas (such as health care, defense and the energy transition) should be excluded from the calculation of a country's fiscal deficit. Northern European countries (which tend to be more fiscally conservative), in the meantime, worry that under the new rules member states' fiscal consolidation plans could become too slow, too vague and too tailor-made to be credible and effective which, they argue, could result in weaker commitments to debt sustainability and future financial crises. Northern governments are also concerned about the European Commission's central role in the design, implementation and enforcement of the fiscal consolidation plans which, they fear, could politicize the entire process and prevent the imposition of sanctions on countries not following the rules. 

• In recent months, Southern European governments have been pushing for reforms to the Stability and Growth Pact to make it more flexible. In July 2022, French Finance Minister Bruno Le Maire said the Stability and Growth Pact was "obsolete" and should be "rethought." He called for a greater focus on the "trajectory" of debt reduction, and argued that EU debt and deficit rules should reflect the costs of the pandemic, the inflation crisis and the war in Ukraine. In October 2022, Italian Prime Minister Giorgia Meloni said that the Stability and Growth Pact was not working and should be reformed to adapt to the reality of each EU member state. 
• Northern European governments meanwhile have expressed their concerns about some aspects of the proposed plans to reform the Stability and Growth Pact. In March 2022, Dutch Finance Minister Sigrid Kaag said her government was open to conversations to reform the Stability and Growth Pact, but warned against removing military spending or green investment from debt sustainability calculations. According to Kaag, this would create significant risks for member states. In October 2022, the Austrian government warned that excessive debt in some EU member states was undermining the bloc's fight against inflation and called for a stronger EU push toward debt sustainability.

Northern and Southern EU members will likely compromise on a reformed Stability and Growth Pact, but if the new rules are not credible they will contribute to financial crises in the long run. The European Commission has said that it plans to reform the Stability and Growth Pact by consensus, to make sure that the new rules enjoy widespread support in the European Union. A compromise to reform the pact is likely because, despite the ideological differences between Northern and Southern governments, most of them agree that the current rules are not working. A more flexible and tailor-made approach to fiscal consolidation and debt sustainability could make EU rules easier to enforce and result in structural reforms that address the specific circumstances of each member state. It would also allow EU governments to focus investment in some areas of common priority (such as the energy transition) without having to worry about breaking Stability and Growth Pact rules. Too much flexibility in the rules, however, could undermine the Stability and Growth Pact's credibility and raise doubts in financial markets and credit rating agencies about deficit and debt reduction efforts in the high-risk members of the eurozone (such as Italy). If the updated Stability and Growth Pact is too vague and open to interpretation (which is what tends to happen when EU governments compromise to satisfy the demands of every member state) it will increase the risk of governments adopting fiscal policies that are unsustainable in the long term (or perceived as such by markets), increasing the risk of future debt crises. In addition, granting the European Commission a greater role in the evaluation of a country's debt-reduction efforts would politicize the review process even more, further reducing the credibility of the Stability and Growth Pact.

• Only half of the 27 EU members have debt-to-GDP ratios below the Stability and Growth Pact's limit of 60% (most of which are either in Northern or Eastern Europe). Moreover, in six countries, the debt-to-GDP ratio is above 100%, including Greece (178.2%), Italy (147.3%), Portugal (120.1%), Spain (115.6%), France (113.4%) and Belgium (106.3%).