Brussels, 27/05/2013 (Agence Europe) - Reforms must continue. On Wednesday 29 May 2013, the European Commission repeated this message in the country-specific recommendations it has prepared from the national stability and reform programmes. The Commission does, however, seem prepared these days to apply the brake on austerity to give countries more time to meet their budget targets.
A Commission source said on Monday 27 May that the European economy will reach a turning point at the end of the year as long at the reforms continue. The source says that, in terms of the budget, the situation is improving to such an extent that consolidation is proceeding, but the impact of structural reforms on growth and jobs will certainly be seen, although there might be a slight delay.
Unveiling the European Commission's spring economic forecasts on 3 May, Euro Commissioner Olli Rehn concentrated on the differentiated approach being taken by the Commission, which is now focused on structural (rather than nominal) results, in other words ignoring the effect of dealing with the economic crisis. This is why it has suggested that Spain and France be given two more years for achieving their budget targets, and the Netherlands and Slovenia one more year (see EUROPE 10840).
Deficits and excessive imbalances. On Wednesday, the Commission is expected to decide on the continuation of excessive deficit proceedings. Leaks to the Italian media suggest that the proceedings launched against Italy in 2009 will be dropped. The Commission is expected to recommend that Italy pursue budget consolidation at an appropriate rate that is compatible with growth.
Another European source said on Monday that the Commission was not solely focussing on the “magic 3%” above which deficits are deemed to be excessive, but also looking at the sustainability of measures taken to consolidate public finances. The first source said that there was no “universal panacea”. A follow-up is now awaited on a report on macroeconomic imbalances in 13 countries that highlighted the situation in Slovenia and Spain (see EUROPE 10824).
The country-specific recommendations are expected to support some reforms planned by member states, and encourage governments to go further. Germany's fiscal policy is expected to be criticised. Der Spiegel says that the Commission will call it ineffective and ask Germany to reduce the burden on the lowest paid. Countries in receipt of aid will not be receiving country-specific recommendations from the Commission. The European Summit in June will be asked to rubberstamp the recommendations.
“Two-pack”. The two-pack (second update) of the stability and growth pact for the eurozone comes into force on Thursday 30 May. The two regulations introduce tighter budget surveillance for eurozone countries, particularly those in receipt of aid. Starting in 2013, each October the eurozone countries will present their draft budget for the following year to the Commission for approval (see EUROPE 10804). The Commission will have the power to ask a country to change its budget plans if it believes that the plans would not enable the country to meet its budget pledges. The Commission will be setting up a group of the wise to look into the question of pooling emission of sovereign debt in the eurozone and report back in the spring of 2014. (EL and MB/transl.fl)