“No plan survives first contact with the enemy.” So observed Helmuth von Moltke the Elder, the famous Prussian field marshal. He understood that even the most carefully crafted design collides with reality the moment it is put into practice, and what matters most is the capacity to refocus and react with determination when circumstances diverge from expectations.

The observation translates well to the EU’s reformed fiscal framework, which celebrates barely two years in operation. EU fiscal surveillance is, at its core, a form of strategic interaction: recommendations are set at the EU level by the European Commission and the Council; member states respond with budgets and commitments; and some interpret the rules to their advantage assuming a limited push-back from the EU.

When the 2024 reform of the Stability and Growth Pact (SGP) was agreed, some projected cautious optimism (e.g. Darvas et al. 2024). The new framework promised to be smarter, more country-specific, and more credible than what came before. Almost exactly two years later, the latest report of the European Fiscal Board (EFB 2026) reveals an uneven picture: implementation is diverging from design, and although it too early to draw firm conclusions, indications suggest the framework does not perform as intended (yet) (European Commission 2026).

A new framework, old problems?

The 2024 reform introduced medium-term fiscal-structural plans (MTFSPs) as the centrepiece of EU fiscal surveillance. Each EU member state was asked to set out a multi-year path for net expenditure growth – the single operational indicator of the new rules – calibrated to put public debt on a sustainable downward trajectory. The idea was elegant: move away from rigid annual targets – expressed in more than one metric – toward country-specific, medium-term anchors that governments could own and implement with greater political buy-in.

Figure 1 Deviations in net expenditure (NE) and nominal GDP growth – draft budgetary plans (DBPs) compared to medium-term fiscal-structural plans (MTFSPs)

Notes: Horizontal axis shows nominal GDP growth differential (DBP vs. MTFSP), while the vertical axis shows net expenditure growth (NEG) differential; both percentage points. Countries in the upper-right and lower-left quadrants exhibit procyclical fiscal behaviour. Triangles denote countries with an active national escape clause. Red borders indicate countries assessed at risk of non-compliance. The Netherlands uses Commission reference trajectory.
Sources: Commission 2025 autumn surveillance package; 2026 DBPs; MTFSPs; EFB calculations.

The Commission’s 2025 autumn surveillance package provided the first real test of whether this ambition is being realised. The most fundamental finding concerns fiscal behaviour. As Figure 1 makes clear, in 2024–2026, the majority of euro area observations fall into ‘procyclical’ quadrants, meaning countries either expanded spending beyond recommended limits when growth surprised to the upside, or cut spending below the recommended path when growth disappointed. This is precisely the pattern the new rules aimed to prevent.

The multi-annual expenditure path was meant to serve as a stable anchor across the cycle, allowing member states to build buffers in good times and draw them down in bad ones. The early evidence suggests the anchor is not holding as firmly as some thought it would. In 2025, only Italy planned to keep its annual expenditure growth in line with its Council recommendation throughout the year. For 2026, just three countries (Italy, Austria, and Slovakia) presented plans to do so.

The compliance label problem

The Commission assessed the 2026 draft budgetary plans (DBPs) using four compliance categories, ranging from “compliant” to “risk of material non-compliance”. The EFB finds that this mechanical assessment produces labels that are difficult to interpret and, in several cases, misleading.

A case in point is the Netherlands. The country was flagged as facing “material risks of non-compliance”, yet its debt and deficit ratios remain comfortably below Treaty reference values. Under the reformed rules, this finding carries no procedural consequences whatsoever, a fact the Commission’s assessment does not really communicate.

Equally problematic is the inverse: Finland was assessed to be compliant with the recommended expenditure benchmark. At the same time, the Commission recommended the opening of an excessive deficit procedure (EDP) for the country.

Finally, the Commission assessed France as “compliant” when the country carries debt above 100% of GDP, the deficit exceeds 4% of GDP, and successive governments have faced persistent political difficulty in securing parliamentary approval for its 2026 budget. By early February 2026, the government finally bypassed parliament entirely to adopt a budget that loosened the deficit target from 4.7% to 5% of GDP. A compliance label that signals green while the underlying fiscal trajectory is deteriorating because the initial plans did not undergo consistent credibility assessments can be misleading.

The EFB recommends accompanying the compliance labels with more context and a more thorough assessment of the credibility of national plans. This can be achieved by reviving the pre-pandemic practice of publishing detailed and separate country-specific analytical notes, so that compliance labels are contextualised within a broader picture of fiscal sustainability.

The defence spending escape hatch

In March 2025, the Commission invited member states to activate the national escape clause to accommodate higher defence spending, in response to the ReArm Europe initiative. So far, 17 EU member states – including 13 in the euro area – have applied and been granted temporary deviations from their expenditure paths, capped at 1.5% of GDP over 2025–2028. The activation of the clause was not in itself controversial. Ramping up defence expenditure is a clear political priority. What concerns the EFB is the Commission’s extensive interpretation of the flexibility on offer.

Rather than restricting the clause to new increases in defence spending, the Commission allowed countries that had already raised defence outlays between 2021 and 2024 to apply this ‘credit’ toward non-defence spending or tax cuts. Around half of the member states that applied for the clause drew on this expanded flexibility in 2025 and plan to do so in 2026, including Belgium, Croatia, Lithuania, Portugal, and Slovenia. Had the EFB’s narrower interpretation been applied (limiting flexibility to new defence increases) Belgium would have been downgraded from “compliant” to “risk of non-compliance”, while Croatia and Lithuania would have escalated to “risk of material non-compliance”.

Moreover, the post-2028 adjustment costs are non-trivial: average additional consolidation requirements of around 0.4% of GDP per year, potentially much higher for individual countries. The EFB called on member states in June 2025 to begin now to develop credible permanent strategies for accommodating higher defence spending, precisely to avert the cliff effects that will otherwise materialise when the clause expires.

Reform commitments: The missing monitor

Countries granted extended adjustment periods of up to seven years were required to commit to ambitious reform and investment agendas as the counterpart to a slower pace of fiscal consolidation. Yet the Commission’s compliance assessment does not monitor whether these commitments are being delivered. Germany and France are instructive cases. Germany’s infrastructure special-purpose vehicle has been designed in ways that permit increases in current consumption rather than productive investment, and a pension reform proposal has been heavily criticised by independent experts for its adverse long-run fiscal effects.
In France, persistent political difficulties have hampered progress on the structural reforms that justified a more gradual consolidation path. If countries can benefit from extended adjustment without delivering on their commitments, the quid pro quo at the heart of the new framework is undermined.

While, strictly speaking, such an assessment is to be done once a year through the progress reports in the Commission’s spring surveillance packages, the DBP process would lend itself very nicely for a quick interim review. A careful monitoring of reform and investment projects seems warranted as they are meant to underpin the achievement of the ultimate goal of the recommended expenditure path, namely, to put the debt ratio on a plausible downward path.

The corrective arm: Idiosyncrasies and inconsistencies

The corrective arm of the SGP – the excessive deficit procedure – continues to display a pattern of uneven implementation. Of the nine ongoing EDPs, all were held in abeyance in the 2025 autumn package, while one new EDP was opened for Finland. The case of Romania is particularly serious: the Council established that no effective action had been taken in response to its earlier recommendation, yet no proposal to suspend EU funds followed, despite this being a legal requirement. This marks the second consecutive year Romania has avoided the prescribed consequences, with Commission decisions appearing to be influenced by political considerations. Meanwhile, the corrective path now demanded of Romania – structural primary balance improvements of around two percentage points per year in 2025 and 2026 – is extraordinary and without modern precedent sustained over multiple years.

Spain also warrants attention. Back in spring 2024, after the severe economic downturn clause had been deactivated, the Commission argued that opening an EDP for the country “would not serve a useful purpose”, although the conditions were actually met. A few surveillance moments later, the Commission sees Spain at “risk of non-compliance” with its expenditure path, which, if confirmed, would lead to a debt based EDP. The EFB points out that earlier action might have supported a more prudent expenditure trajectory and reduced the risk of embedding cyclical revenue windfalls into medium-term plans.

Taking stock after the first round

Evidently, von Moltke’s insight was not that planning is futile, but that successful practitioners must respond to the reality they encounter rather than the reality they anticipated. The EU’s new fiscal framework is facing its own version of this challenge. The new rules represent a genuine conceptual improvement over what came before. Country-specific debt sustainability analysis, medium-term expenditure anchors, and national ownership of fiscal plans are sound principles.

But the first round of implementation portends possible implementation gaps, which if left unaddressed, could hollow out the framework’s credibility before it has a chance to prove itself.
The framework has met the complexity of real-world fiscal politics. Policymakers now face the challenge to close the gap between design and practice.

Authors’ note: The views expressed in this column do not necessarily reflect those of the European Commission or the European Fiscal Board.

References

Darvas, Z, L Welslau and J Zettelmeyer (2024), “The implications of the European Union’s new fiscal rules”, Bruegel Policy Brief 10/2024.

European Commission (2026), “The implementation of national medium-term fiscal structural plans: Recent fiscal developments and draft budgetary plans for 2026”.

European Fiscal Board (2026), The implementation of national medium-term fiscal-structural plans: Recent fiscal developments and draft budgetary plans for 2026.

Pench, L (2024), “Three risks that must be addressed for new European Union fiscal rules to succeed”, Bruegel Policy Brief.