On Thursday 12 July, the European Court of Auditors published a damning report for the European Commission, accusing it of having failed to fulfil the principal objective of reducing the structural deficit, by introducing flexibilities in the framework of the preventative arm of the Stability and Growth Pact (SGP).
In this study, the auditors refer to the flexibilities, reaffirmed by the Commission in January 2015, which authorise certain deviations from the budgetary trajectory for member states in the preventative arm of the Pact (government deficit below 3% of GDP), by means of structural and investment reform clauses (see EUROPE 11229).
Using a matrix they have developed, the Court highlights the negative repercussions that the various flexibilities may have on compliance with the medium-term budgetary objectives (MTOs), effectively delaying the reduction of the structural deficits, a key element of the preventative arm of the Pact. The structural reform clause does not, they find, correspond to the actual budget costs of these reforms and the Commission is using them as an “incentivising instrument”.
The Court of Auditors also considers that the credibility of the preventative arm of the Pact has been “eroded” by developments of the corrective plank, as the rules on the latter focus solely on the nominal deficit.
A number of recommendations have therefore been made to the Commission, which is called upon to: - “ensure that medium-term budget objectives are reached within a reasonable period”; - set in place “stricter rules for heavily indebted member states”; - “address the issue of continuous deviations from the required adjustment over several years”.
A slight difference in interpretation, says Commission. Having been approached by EUROPE for comment, Pierre Moscovici, the Commissioner for Economic and Financial Affairs, spoke of a “slight difference in interpretation and approach”.
“I am absolutely convinced that the use of flexibilities that was brought into the preventative arm in January 2015 was proportionate, appropriate and totally economically justified”, he said, adding that the economic context of the time called for such an approach.
Moscovici also took pains to stress that the Commission had fully complied with the rules of the Pact, “subtly and intelligently”. (Original version in French by Lucas Tripoteau)