Brussels, 18/05/2016 (Agence Europe) - Presenting its socio-economic policy recommendations to all member states except Greece, on Wednesday 18 May, the European Commission said that it is too soon to impose sanctions on Spain and Portugal, which will not achieve the budgetary objectives previously laid down, opening itself up to the risk of being accused of excessive indulgence in its political interpretation of the rules of the Stability and Growth Pact.
The emphasis must be laid on speeding up investments and structural reforms to support moderate but stable growth throughout Europe, with the international environment clouding over slightly. As there is “less wind in our sails”, we will have to “use our engine… or else get rowing”, said the Commissioner for Economic and Financial Affairs, Pierre Moscovici.
At a budgetary level, the Commission recommends that the Council of the EU close the excessive deficit procedure against Cyprus, Ireland and Slovenia. It takes the view that these three euro-zone countries, the first two of which have been the subject of a three-year bailout plan, have sustainably reduced their nominal public deficit, which will remain below the threshold of 3% of GDP in 2016 2017. Although the Ecofin Council is adopting this recommendation, six member states (Spain, Croatia, France, Greece, Portugal and the United Kingdom), four of which are Eurozone countries, are still under an excessive deficit procedure.
Spain and Portugal given an extra year to bring down their deficit
Moscovici, who feels that Madrid and Lisbon have already made considerable budgetary efforts, feels that the time is “not right, from either a political or an economic point of view”, to start a new stage in the deficit procedure against these two member states (see EUROPE 114884 Portugal and EUROPE 11522 for Spain). Acknowledging the fact that the decisions to be made are never easy and are subject to criticism, he reiterated that both countries had been “hit hard” by the economic crisis. The Commission therefore suggests that Portugal and Spain are given an extra year - “only”, Moscovici stressed - to get their nominal deficits below the 3% threshold, which will make it 2016 for Lisbon and 2017 for Madrid.
More specifically, the Commission recommends that Portugal reduce the public deficit to a level of 2.3% of GDP in 2016 and that Spain bring its public deficit down to 3.7% of GDP in 2016 and 2.5% in 2017. In order to do this, Madrid and Lisbon are called upon to take “all structural measures necessary” in line with the aim of improving, for each country, the structural balance of 0.25% of GDP in 2016 and to achieve an annual budgetary adjustment of 0.6% of GDP in 2017. They must make use of any and all windfall gains to consolidate the deficit (-4.4% of GDP, Portugal and -5.1% to Spain in 2015) and the government debt (129% of GDP for Portugal and 99.2% for Spain in 2015).
The two countries have been given until July, in other words after the Spanish general elections of 26 June, to analyse whether the recommendations have taken effect. The possibility of financial sanctions against Madrid and Lisbon cannot be completely ruled out at this stage.
Italy may be able to benefit from flexibility under Pact. Italy, which falls within the preventative plank of the Pact (public deficit of less than 3% of GDP), has asked to benefit from the flexibility laid down in the budgetary rules in terms, for instance, of investments made, reforms pursued and efforts made to host refugees (see EUROPE 11550). According to Moscovici, the Commission made a “gesture” in this regard in exchange for specific commitments from Rome, in particular to comply with the objective of reducing the public deficit to “1.8% of GDP in 2017”. In spite of this obligation, Italy is obtaining the option to deviate from the medium-term budgetary trajectory to a maximum level of 0.75% of GDP. In November, checks will be carried out to ensure that the draft Italian budget for 2017 respects the commitment made and to assess the impact of the cost of hosting refugees.
It is worth noting that the Commission has assessed whether Belgium, Italy and Finland are complying with the debt criterion laid down in the Pact in light of relevant factors explaining a potential deviation from the reduction trajectory laid down. It feels that the three states have complied with the European budgetary rules.
As regards the macroeconomic imbalance procedure, the European institution confirmed that Croatia and Portugal are facing excessive imbalances. It calls upon them to apply their reform programmes, which it deems to be adequate, rigorously and with all possible speed.
The Commission's country-by-country recommendations for 2016 are based on the stability and reform programmes submitted to it by the 27 member states in April and on the spring economic forecasts presented in early May (see EUROPE 11545). They will be on the agenda of the Ecofin Council meeting of Wednesday 25 May, although the member states are not expected to make any formal decisions until June.
20 million still out of work
The recent efforts of the member states to fight unemployment have paid off. Initial encouraging results have been observed: the employment market is doing better, with a rising average employment rate and unemployment falling. However, “there are still 20 million people out of work in Europe… Unemployment has fallen, but it is falling too slowly”, said Marianne Thyssen, the Commissioner for Employment and Social Affairs.
There are still three main efforts the member states need to implement in 2016 to stimulate job creation, “as this year's recommendations are based on access to the employment market”, Thyssen explained. (1) The employment market needs to strike a balance between flexibility and security. (2) The need to develop the capacity for job creation is another recommendation made to the member states. This development is vital to improve social cohesion and to remedy the problem of qualifications being out of sync with market demand. The answer lies in bringing together supply and demand, the Commissioner added. (3) The third effort called for by the Commission is to invest in skills to contribute to better economic convergence. Thyssen stressed the need to “help the unemployed to access training so that they can return to work”.
Thyssen stressed that the prerequisite condition for the implementation of the Commission's recommendations lies in “strong social dialogue” involving the social partners at national and European levels. Nonetheless, even if these recommendations exert a certain political pressure on the member states, these cannot be sanctioned for failing to observe them because, in social matters, “we do not have the same system of sanctions as for budgetary matters”, the Commissioner acknowledged. (Original version in French by Mathieu Bion with Maëlle Didion - stag)