Expressing satisfaction with the largely encouraging economic results of the European Union (see EUROPE 12014), the European Commission has urged the member states to continue their budgetary efforts and structural reforms, in the country-specific recommendations it announced on Wednesday 23 May in the framework of the budgetary process of the ‘European Semester’
It was a message of optimism that the European institution sent out first.
The Commissioner for the euro and Social Dialogue, Valdis Dombrovskis, said that the European economy is growing at its fastest pace for ten years. He is particularly pleased by the level of employment observed in the member states. His colleague for Economic and Financial Affairs, Pierre Moscovici, spoke of economic expansion, referring to an historic year since the introduction of the single currency: in 2018, the 19 Eurozone states will all, for the first time, have public deficit in nominal terms of below 3% of GDP.
But efforts must continue to consolidate and bolster the current economies, Moscovici warned.
Towards bringing France out of excessive deficit procedure
Unsurprisingly, the Commission has recommended that the Council of the EU end the excessive deficit procedure in place against France since 2009.
The French government deficit stood at 2.6% of GDP in 2017 and is expected to fall to 2.3% of GDP in 2018.
Moscovici considers that despite the weak points observed by the French Court of Auditors, the country’s budgetary trajectory is clear and sustainable, describing the recommendation as the end of nine long years of a difficult procedure.
In its recommendations, the Commission invites the French authorities to reduce their structural deficit by 0.6% of GDP a year from 2018 onwards, to come into line with the rules of the preventative arm of the Stability and Growth Pact. French government debt should also be reduced. The European institution also calls for the country to continue its reforms in the field of education and training, and to strengthen its employment market.
Reacting to the announcement, Bruno Le Maire, the French finance minister, and Gérald Darmanin, the head of public accounts, pledged that the government would adhere to its European commitments and ensure the consolidation of France’s public finances, whilst pursuing the changes necessary for growth.
The Commission is not recommending bringing Spain out of the excessive deficit procedure this year. The country’s government deficit in nominal terms was 3.1% of GDP in 2017 and is expected to fall below 3% in 2018. On the basis of the draft 2018 budget submitted by the Spanish authorities in April, it considers the authorities of the country will be broadly compliant with the rules of the Pact. Madrid may therefore come out of the infringement procedure next year.
In its recommendations, the European institution also recommends, aside from compliance with the rules of the Pact, that Mariano Rajoy’s government provide support for jobseekers and increase public investment in research and innovation.
Italian and Belgian government debts under observation
The Commission has also adopted reports, on the basis of article 126, paragraph 3 of the TFEU, concerning compliance with the government debt criteria for Italy and Belgium.
The institution is concerned that under current policy, the reduction of the debt in both countries will be insufficient with regard to the rules of the Pact. Taking the view, however, that the two countries’ budgets for 2017 are basically in line with the rules of the preventative arm of the Stability Pact, the College of Commissioners did not recommend that specific excessive deficit procedures be opened.
Compliance with the debt criterion will be examined on the basis of the ex-post 2018 figures, which will be available next year.
The Commission has also made economic recommendations to Italy. It must continue to reduce its deficit, by carrying out a budgetary adjustment of 0.6% of GDP, and also the government debt, Dombrovskis said.
However, the Commissioners declined to comment on the negotiations to form an Italian government with an unknown economic policy. Moscovici simply promised cooperation with the future Italian executive based on dialogue.
Hungary and Romania under fire
Among the announcements made on Wednesday, the European institutions sent two recommendations to the Council, to ask Hungary and Romania to correct the significant gap observed between their respective budgetary trajectories and their medium-term objectives.
Budapest and Bucharest will be invited to take the necessary measures in 2018 to limit public spending. (Original version in French by Lucas Tripoteau)