Brussels, 25/09/2013 (Agence Europe) - On Tuesday 24 September, the EU28 decided not to introduce the technical adjustments recommended by the European Commission to the calculation methods for structural deficits (ignoring the effect of the economic cycle). The change would have had a positive impact on countries like Spain. The ball has now been sent back to techno level, but experts agreed on the original version last week (see EUROPE 10926).
The Council of the EU's economic policy committee decided on Tuesday that more work needed to be done, explained the European Commission on Wednesday 25 September. The impact on countries of this technical change in calculation methods is not yet clear and the EU28 wants more information before endorsing the changes.
Simon O'Connor, a European Commission spokesman on economic and monetary affairs, said the Commission was planning to “take forward the work” with experts on the output gap working group. No deadline has been set, but the idea seems to be to finish the work by the end of the year so the Commission can use the new method for its Spring Economic Forecasts. An EU source said, however, that the extra impact assessment would take several months.
O'Connor said “the current methodology will continue to be used for the time being.” One might be attempted to say “reluctantly,” as the source said the new method was a “superior way of assessing” potential GDP growth, in turn used to calculate the structural deficit, which estimates the gap between a country's potential and actual output.
The new methodology would take better account of structural aspects of a country that have a particular impact in high-unemployment nations like Spain. The Commission says that for Spain, ignoring the public deficit of 6.5% of GDP, more than two thirds of the deficit is structural rather than cyclical because Spain's unemployment stands at 27% of the working population, but if the economy were running at full capacity, that would fall to 23%. This gives the impression that there is not much of a difference between the structural and actual deficit and therefore calls for greater austerity measures in the form of tax rises and spending cuts. Although the impact on each of the twenty-eight member states has to be worked out before a formal decision can be taken, the effect on Spain and to a lesser extent on other countries in receipt of aid is expected to be positive. (EL/transl.fl)