Seven countries of the eurozone (Belgium, Cyprus, Finland, Italy, Spain, Lithuania and Portugal) have until Thursday 27 October to respond to the European Commission's questions about their draft budgets for 2017.
"These letters should be taken for what they are: a natural element of the dialogue process with the member states. The fact that they have been sent does not prejudge the next steps; so there is no point in being dramatic (…). We are asking for more information because we do not feel that this information has been provided", European Commissioner for Economic and Financial Affairs Pierre Moscovici said on Wednesday 26 October.
Italy. Located in the preventative plank of the Stability Pact (public deficit below 3% of GDP), Italy submitted a draft budget that provides for structural budgetary efforts that are negative and well below the minimum level of 0.6% of GDP recommended by the Council, the Commission points out in its letter to the Italian authorities, which it sent on Tuesday 25 October.
In order to assess whether Rome is still complying with the conditions that allowed it to benefit from additional flexibility under the Pact in 2016, we would need clarifications on the revision of the objectives and the substantial gap that is emerging from the commitments entered into in the spring, the Commission states. It is calling on the Italian government to put figures to the exceptional expenditure related to the recent earthquake and hosting refugees.
The draft Italian budget for 2017 forecasts a deficit of 2.3% of GDP, a performance that comes below the level of 3% laid down in the Pact, but which is above the prior commitments made to reduce the deficit to around 2% (see EUROPE 11652).
Portugal. As regards Portugal, which needs to reduce its excessive deficit by the end of 2016, the Commission has highlighted a significant risk of deviation from the structural budgetary effort required of at least 0.6% of GDP in 2017. It has asked for information on the levels of revenue, for instance tax revenue, that the authorities intend to collect.
Cyprus. The Commission has asked the Cypriot authorities to justify the fact that their draft budget significantly deviates from the objective of a budgetary balance in structural terms in 2017, from a surplus of 1.5% of GDP in 2015 to deficit of 0.1% in 2016 and an increased deficit, to stand at around -2.0% in 2017.
Belgium. There is also a risk that Belgium will depart from the required structural budgetary effort, hence the Commission's request for additional information on a breakdown of this effort for 2017. The Commission also stresses that there are compliance risks for 2016, even after taking into account the temporary deviation allowed for additional refugee and security-related expenditure.
Finland. In 2017, Finland anticipates that it will deviate from the structural budgetary effort trajectory of 0.6% of GDP, whilst asking to benefit from flexibility under the Pact for an equivalent amount for the structural reforms underway and investment expenditure co-funded by the EU. In order to give an answer to this request in spring of next year, the Commission has asked for clarification on the budgetary adjustment and debt reduction trajectories.
Finally, Lithuania and Spain have been called upon to provide assurances that their respective future governments will submit revised draft budgets with a view to complying with the budgetary commitments. Placed, like Finland, in the preventative plank of the Pact, Lithuania is hoping for some flexibility under the budgetary rules in line with the structural reforms being undertaken. Spain, which has committed to reduce its government deficit to 3.1% of GDP in 2017, has presented a draft budget providing for a deficit of 3.6% (see EUROPE 11643). (Original version in French by Mathieu Bion with Élodie Lamer)