Brussels, 15/11/2013 (Agence Europe) - The European Commission is generally satisfied with the draft budgets for 2014 submitted by 13 countries in the eurozone and is not calling officially for any changes, although it says that the room for manoeuvre of some countries is tight and there are real dangers of not meeting targets. The assessment will be discussed by finance ministers at the Ecofin Council meeting on Friday 22 November.
Euro Commissioner Olli Rehn said that none of the draft budgets broke Stability and Growth Pact rules, but there was room for improvement as some countries did not have “any margin of slippage and substantial efforts would be needed in coming years to stay on track”.
Under the rules introduced in the “two-pack” of SGP legislation, the Commission's assessment is not legally binding on countries, but Rehn said he hoped that the recommendations would be taken into account as the Commission had tried to work as effectively and rigorously as possible with the aim of ensuring the member states practise what they preach.
In the eurozone, the Commission says that the consolidation of public spending that has been in process for a few years now is “bearing fruit” and the average public deficit has gone from over 6% of GDP to nearly 3% and is expected to fall below 3% in 2014. Public debt seems to have peaked at 96% of GDP in the eurozone and 90% in the EU28. Estonia and Germany are the only two countries to have achieved their medium-term deficit reduction targets. The Commission repeated its call for cuts in spending rather than tax rises. It says that real efforts have been made in various member states in the field of structural reforms, fiscal reform and healthcare and pension systems.
Five countries run the risk of their budget for next year failing to meet the Stability and Growth Pact rules, namely Spain, Italy, Luxembourg, Malta and Finland.
Italy's public debt is expected to peak at 133% of GDP in 2013 and 134% in 2014, according to the European Commission's Autumn Economic Forecasts (see EUROPE 10957). Italy will not be able to take advantage of the investment clause whereby countries whose deficit is below 3% of GDP can omit from public spending calculations investment in infrastructure backed by EU funding. Rehn welcomed the current public spending review in Italy, saying it would generate results in early 2014 which should make the country eligible for the investment clause. Italian Economy Minister Fabrizio Saccomanni said in La Repubblica that one didn't need to be Sherlock Holmes to discover that the debt is going up, but pointed out it was due to the recession and faster payment of civil service arrears. He said the spending review could lead to savings of up to 2% of GDP.
Rehn said Spain was making great efforts to stabilise its public finance and introduce structural reforms in order to lay the foundations for a more sustainable growth model and more robust job creation, but despite the fact the country will meet its targets for 2013 in nominal terms, it could well not meet the structural and nominal targets in 2014, which is why it is being asked to make some adjustments to its budget process. In the assessment document, the Commission says that some of the Council's recommendations had not been followed, such as rationalisation of public spending, and the Commission and Council will monitor the situation closely because various measures have yet to be introduced or implemented.
Finland may break the Stability and Growth Pact rules. The Commission says that the public deficit could significantly deviate from the medium-term reduction target of 0.5% of GDP and for the first time, Finland's public debt might rise above 60% of GDP.
The Commission says three eurozone countries, France, the Netherlands and Slovenia, have no room for budget manoeuvre, and although they have taken effective measures to reduce their structural deficit (not including the cost of the recession), they have no room for slippage, explained Rehn, saying that they would have to make substantial efforts to remain on track over the next few years.
The commissioner says that recovery in France is slight and the public deficit could reach 3.8% of GDP in 2014, above the target of 3.6%. He urged the government to continue with reforms to improve growth potential and job creation. French economy minister Pierre Moscovici welcomed the analysis, saying that the Commission recognised the reality and credibility of the budget efforts in structural terms, backed the reform of public finances and validated the economic scenario used for the 2014 budget. France is still committed to reducing its deficit to below 3% of GDP and start to reduce public debt in 2015, he added, noting that the budget reductions would mainly come from spending cuts of around 80% in 2013 and 100% in 2015. Commenting on the structural reforms, he said that France takes a different view from the Commission when it comes to reform of the pension system since Paris works on the actual age at retirement rather than the Commission's line of the legal age of retirement.
Slovenia has “delivered effective action on the structural deficit”, said Rehn. The banks are now under examination and the situation should become clear next month when the outcome of the current bank stress tests is known. Here, too, Slovenia has made effective moves and is on track, he said, but things are not quite so rosy for the structural side of the Council's budget recommendations, where little progress has been made. The structural improvement is expected to be to the tune of 0.6% of GDP in both 2013 and 2014, lower than forecast for 2013 (0.7%) but above the recommended 0.5% for 2014. The Commission does not think Slovenia will meet its nominal targets and asks for more detailed information about its economic reform plans.
Reasons to be cheerful include the fact that Belgium may end the year with an exit from the excess deficit proceedings because it is expected to be sustainably below the 3% cut-off at 2.8%. Rehn said that if this is confirmed by Eurostat's statisticians in the spring then the excess deficit proceedings are likely to be closed.
Croatia is moving in the opposite direction. The Commission has identified excess deficit and recommends that the Council of Ministers opens excess deficit proceedings. The Croatian deficit is expected to remain above 3% in 2013-2015, and the debt is expected to exceed the 60% cut-off point next 2014.
Poland has not taken any key measures to respond to the Council of Ministers' recommendations that it put an end to its excess deficit this year. The Commission therefore recommends that the Polish deficit reduction targets be relaxed to 4.8% of GDP in 2013 rather than the 3.6% laid down in the June recommendations, 3.9% in 2014 (rather than 3%) and 2.8% in 2015. Rehn said Poland would be given an extra year to reduce its deficit to below 3% and the country had until 15 April 2014 to take the necessary budget consolidation measures. (MB/EL/transl.fl)