On Wednesday 21 November, at the start of the 2019 financial year of the 'European Semester' budget process, the European Commission stressed the need for Member States to strengthen 'inclusive' and sustainable growth through targeted investments and further consolidation of public finances.
"The economic and fiscal situation has not been this favourable since 2014. Paradoxically, risks remain high in Europe and globally." It is with this cautious optimism that Pierre Moscovici, Commissioner for Economic and Financial Affairs, wished to comment on the Commission's 'autumn package', composed of several reports and recommendations on the economy and economic policy in the European Union.
These documents reflect the economic forecasts from 8 November (see EUROPE 12133), and the presentation of the draft national budgets for 2019 by the Eurozone Member States on 15 October.
For growth to be sustainable and inclusive, the institution must, in particular, invest in key sectors, pursue structural reforms and control public spending.
The current economic situation "opens a window of opportunity that will not always be open", said Valdis Dombrovskis, Vice-President of the European Commission, who wants States to "reduce their debt, where it is high, and to rebuild fiscal buffers" to cope with future shocks. A thinly veiled reference to the Italian budgetary situation.
This is the background to the Annual Growth Review and the draft recommendation on socio-economic policy in the Eurozone for 2019 that the Commission submitted to the Council on Wednesday.
The draft recommendation points, in particular, to the need to deepen the Economic and Monetary Union and to complete the Banking Union. The results of the current work within the Eurogroup on this subject will be presented on 3 December (see EUROPE 12140).
Employment. The draft Joint Employment Report, also published as part of this autumn package, highlights the increase in job creation and the fall in unemployment.
“Employment has never been so high, and we are well on track to reach the EUROPE 2020 target of 75% employment rate," said Marianne Thyssen, Employment Commissioner.
Nevertheless, the document identifies differences in employability by age, origin or gender. Mrs Thyssen thus hopes that the investment will also be made to enhance the "skills" of citizens.
Proposed budgets for 2019. The Commission's opinions on the draft budgets of the nineteen Eurozone countries for 2019 were highly anticipated, particularly with regard to Italy (see other news).
"For the first time since the creation of the single currency, no country in the region will have a deficit exceeding 3% of GDP" in 2019, welcomed Mr Dombrovskis.
However, the European institution considers that 13 draft budgets are in line or broadly in line with the rules of the Stability and Growth Pact.
On the other hand, for Belgium, France, Portugal and Slovenia, there is a risk of non-compliance with the rules of the Pact as regards the level of structural deficit reduction (excluding economic conditions).
The Spanish draft budget also presents risks of non-compliance with these rules, while Madrid is due to leave the corrective arm (public deficit above 3% of GDP) next year to integrate into the preventive arm of the Pact.
It should be noted that the Commission adopted its first report on Greece under the enhanced surveillance framework in Athens since it emerged from the third rescue plan in August (see EUROPE 12077). In particular, it notes that the Greek draft budget is in line with the commitments made to maintain the primary budget surplus (excluding debt services) above 3.5% of GDP.
"This report now paves the way for the cancellation of the measures, which had been pre-legislated, of additional cuts in pensions that were decided on two years ago," Mr Moscovici said. It will be up to the Eurogroup to take such a decision.
Outside the Eurozone, Mr Moscovici also described the budgetary situation in Hungary and Romania as "very worrying" The Commission has therefore addressed a recommendation to the Council that these two countries adjust their budgetary paths in order to meet their medium-term budgetary objective.
Macroeconomic imbalances. Finally, the report on the alert mechanism points out that 13 Member States need to be assessed in depth for 2019 with regard to macroeconomic imbalances.
These include the countries affected by the procedure on macroeconomic imbalances (see EUROPE 11976), in particular Germany, France and Italy. (Original version in French by Lucas Tripoteau)