Brussels, 17/11/2015 (Agence Europe) - The member states of the eurozone will have to wait until next spring to find out whether or not they will be able to benefit from the budgetary flexibility regarding expenditure related to the refugee crisis, the Commission indicated when returning its opinions on the preliminary draft budgets, on 17 November. It also showed openness towards the case of France, which has already announced that it would exceed its budgetary commitments due to further expenditure for security, following the attacks perpetrated in Paris on Friday 13 November. None of the draft budgets has been rejected by the European institution, as the Commissioner for Economic and Financial Affairs, Pierre Moscovici, stressed.
“Security and the protection of citizens in France and in Europe is the absolute priority and you can be sure that the Commission fully understands this”, Pierre Moscovici explained, when asked about the statements of the French leaders. The day before, the French President, François Hollande, said that the Security Pact came “before the Stability Pact”. On Tuesday, the French Prime Minister, Manuel Valls, added that France would overshoot its budgetary commitments due to new expenditure related to security. “The rules of the Pact do not prevent the government from deciding their priorities”, the European Commissioner explained. The opinion presented by the Commission on Tuesday morning did not take account of the announcements made the day before. “The Pact is not set in stone, it is not stupid, it is intelligent and capable of responding to situations (…). This is the spirit in which we will talk with the French government”, Pierre Moscovici continued, explaining that the French situation would be reassessed in the light of these new developments. “The Pact is designed in such a way that the states can build enough budgetary margin into it as to be able to react not only to economic cycles, but also to unforeseen events. From this point of view, there is margin to react to this situation, but we cannot draw any conclusions now”, said Valdis Dombrovskis, vice-president of the Commission in charge of the euro.
Costs of the refugee influx. Four countries (Austria, Belgium, Finland and Italy) referred to the impact of hosting refugees on the public finances in their national documents, but “other member states may also be affected”, Dombrovskis said. The flexibility authorised by the Pact allows additional expenditure arising from unusual circumstances outside the control of a state to be taken into account for any given year, in both the preventative and the corrective planks of the Pact. “The Commission is inclined to use this provision”, said the Commissioner. The Commission will follow the development of the situation in order to determine the amount which may be taken into account. However, this question will not be decided upon until next spring, when the Commission carries out an ex post assessment of any temporary gaps in the requirements of the Pact for 2015 and 2016. This means that the Commission will not move to the next stage of the procedure if the gaps observed stem solely and directly from the net additional costs brought about by the refugee crisis. Nor will it open excessive deficit procedures, as long as the deficit of the public administrations remains close to 3% of GDP in the event that this threshold is exceeded.
Austria estimates that the additional expenditure caused by the refugee influx will be in the region of 0.08% and 0.16% of GDP in 2015 and 2016 respectively. Theoretically, the provisions authorise flexibility, the opinion on Austria explains. The Austrian draft budget is deemed to be “at risk of non-compliance” (Austria is in the preventative plank of the Pact, but subject to the interim rule on the debt criterion) with the Pact. It flags up the risks of significant deviation from Austria's medium-term budgetary objectives in 2016. “However, excluding the current estimation of the budgetary impact of the exceptional flow of refugees from the assessment, the deviation forecast would no longer be as significant”, the Commission writes.
As regards Belgium, the additional expenditure related to the refugee influx has been put at around 0.03% and 0.1% in 2015 and 2016 respectively, and the country has therefore called for a temporary deviation from its trajectory. The Belgian draft budget is deemed “overall compliant” with a risk of deviating from the budgetary objectives. Belgium is therefore called upon to take the necessary measures.
The Finnish draft budget refers to the cost of integrating refugees, but does not put a figure on it. In September, Finland requested a temporary deviation of 0.5% of GDP from its trajectory towards its medium-term budgetary objectives to take account of the major structural reforms with a positive impact on the viability of its public finances and a temporary deviation of 0.1% of GDP to take account of investments co-funded by the EU. However, the Commission takes the view that in the absence of a margin of budgetary security from the deficit threshold of 3% of GDP, Finland is not eligible for temporary deviation in 2016. The Commission finds the draft Finnish budget “overall compliant” with a risk of deviation in 2015 and 2016.
Italy is “potentially the only country eligible to benefit from all of the flexibility in the Pact”, Pierre Moscovici explained. Italy has requested flexibility in the order of 0.2% of GDP, in other words the total annual amount of expenditure linked to migration in 2016. The country has also requested additional flexibility of 0.4% of GDP (on top of the 0.4% granted by the Council in June), including 0.1% of deviation by virtue of the 'structural reforms' clause and 0.3% under the 'investment' clause. The Commission is reserving its answers until the spring. However, the Vice-President noted that this request came outside the normal procedure of the European Semester. These calls should have been made in spring of this year, in order to allow the Commission to evaluate them and Italy to prepare its budget accordingly. At this stage, it is not possible to “award this flexibility or to say that the budget is compliant”, Pierre Moscovici explained. “What we need to know is whether the structural reforms actually carried out justify 0.1% and the same goes for the investment; Italy is eligible, but we have to see whether the conditions which justify the investment clause have actually been met and to what extent”, he continued.
More generally, for the countries in the preventative plank of the Pact, the German, Estonian, Luxembourg, Dutch and Slovakian budgets are compliant. Those of Belgium, Latvia, Malta and Finland are “overall compliant”, with certain risks of deviations from the budgetary adjustment trajectories. The Italian, Lithuanian and Austrian budgets are felt to be “at risk of non-compliance”. As regards the country in the corrective plank of the Pact, the French, Irish and Slovenian budgets are “overall compliant”. France, which has to correct its excessive deficit by 2017, is expected to comply with the interim nominal objectives recommended for 2015 and 2016, but it is not yet certain whether the deficit can be corrected in the stated time. This does not take account of the announcements of the French government regarding security. Ireland and Slovenia could come under the preventative plank of the Pact from 2016. For 2016, there is a risk of deviation, which could be significant for Slovenia.
The opinion on the Spanish draft budget was returned in October. Portugal has still not submitted its draft budget and Lisbon is called upon to do so “at the earliest opportunity”.
Lastly, the Commission has adopted a communication on the United Kingdom which concludes that London should achieve the objectives recommended in terms of nominal deficit and underlying improvement of its structural balance for the financial years 2015-2016 and 2016-2017. The Commission therefore takes the view that the United Kingdom has taken effective measures in line with the Council's recommendation of June 2015.
S&D wants new 'policy mix'. Upstream of the publication of the opinions, the MEP Maria Joao Rodrigues (S&D, Portugal), rapporteur of the EP on the annual growth review, stressed that recovery was weak and carried mainly by exports. “Therefore it is not sustainable in the long term, because we cannot rely solely on the rest of world”, she told a small group of journalists over a press breakfast meeting on Tuesday morning. Although the Commission is still talking of a virtuous triangle for growth (budgetary consolidation, structural reforms and investments), Joao Rodrigues is calling for a fourth criterion to be included: boosting internal demand. She has called for an external study to support her theory and plans to negotiate with the other political groups of the EP to obtain a consensus, but not at the cost of her concerns for genuine recovery.
The European Trade Union Confederation for its part notes that the Commission had not rejected any of the national budgetary plans and “takes this as an extremely welcome sign of a relaxation of austerity”. (Original version in French by Elodie Lamer)