In a general context of economic slowdown (see EUROPE 12249/6), the European Commission encourages Member States, in its country-specific recommendations presented on Wednesday 5 June as part of the ‘European Semester’ budget process, to pursue the implementation of structural reforms and budgetary efforts, while focusing on targeted investments conducive to growth.
“The European economy is in much better shape than we found it”, said Valdis Dombrovskis, Commissioner for the Euro and Social Dialogue, opening the press conference, welcoming growth in all Member States. Before qualifying that by indicating that several Member States had not pursued adequate economic policies in recent years to address potential difficulties. “There is still much to do to make our economy more competitive and resilient”, he added.
While all eyes were on the Italian situation and the presentation of a new public debt report under Article 126.3 of the TFEU (see other news), the documents presented by the Commission covered many aspects of the European economy.
“With this package, the Commission continues to provide the economic and budgetary guideline, which is necessary for our Member States to ensure the coordination of our economies, and thus make us stronger, both individually and collectively”, said Pierre Moscovici, Commissioner for Economic and Financial Affairs.
New in 2019, these recommendations include an investment component for each Member State, identifying specific needs and focusing in particular on regional and territorial disparities. “Investment and reforms need to go hand in hand”, says the Commission's general communication.
Towards Spain's exit from the excessive deficit procedure
Spain, the last country under the excessive deficit procedure, after France's exit last year (see EUROPE 12047/3), is on track to join the preventive arm of the Stability and Growth Pact.
Indeed, while Madrid's nominal deficit fell below 3% of GDP in 2018 and is expected to fall below 3% of GDP this year, the Commission suggests in its recommendation to the EU Council that the Member States act to remove the Iberian kingdom from the corrective arm of the Pact.
“This marks the end of a long and painful road not only for Spain, but for the whole European Union, for the euro zone [...]. I want to encourage our Spanish friends to take the budget seriously”, Mr Moscovici said. Mr Dombrovskis also stressed the need for Madrid to maintain “sound public finances”.
If the ECOFIN Council were to endorse this recommendation in formation and thus endorse the exit from the excessive deficit procedure, Madrid should therefore focus on reducing its structural deficit by 0.65% of GDP in 2019 and then in 2020.
“We welcome the news that the Commission is proposing that Spain should be removed from the excessive deficit procedure”, said Nadia Calviño, Spain's Finance Minister.
France urged to reduce its structural deficit. For France, the Commission asks Paris to continue its efforts on the structural deficit front and to take “the necessary measures to comply with the provisions of the Stability and Growth Pact” starting in 2019.
The structural effort for 2019 and 2020 must be “in line with the requirements of the Stability and Growth Pact”, Mr Moscovici said.
France, which emerged from the excessive deficit procedure last year, was expected to reduce its structural deficit by 0.6% of GDP in 2018. However, the Commission has only quantified the effort at 0.1% of GDP. The institution has this doctrine of giving Member States flexibility in applying the rules of the preventive arm of the Pact. It thus allows a deviation from the structural deficit targets of 0.25% of GDP per year for 2 years (or 0.5% of GDP over 2 years).
As Paris reduced its structural deficit by 0.1% of GDP last year and therefore ‘used’ the flexibilities of 0.5% of GDP, the French authorities will therefore have to record a reduction in the structural deficit of 0.6% of GDP this year. However, the structural effort planned today for this year or next is zero. “This is not a rate compatible with the rules of the preventive arm of the Pact”, Mr Moscovici added.
Nothing is envisaged this year in procedural terms by the Commission against Paris, since any actions are based on the final results recorded. But if the trajectory envisaged by Paris for this year were to be confirmed in the figures next year, it could be a question of a significant deviation procedure.
Questions about Greece. In parallel with these recommendations, the Commission also published its third enhanced surveillance report framework for Greece, following the second update report presented in April (see EUROPE 12228/18).
Since the end of its financial supervision last August, the Hellenic Republic has been monitored with regard to its budgetary and socio-economic policies (see EUROPE 12077/1). In this context, Athens must maintain a primary surplus (excluding debt service) of +3.5% of GDP until 2022 and +2.2% of GDP on average until 2060, as well as implement a number of socio-economic reforms.
And while the second report considered the efforts of the Greek authorities to be sufficient, resulting in the disbursement of a new aid tranche in May (see EUROPE 12246/18), this third document is less optimistic. Thus, the latest socio-economic and fiscal measures, announced by Alexis Tsipras at the beginning of May and voted on by the Greek Parliament (see EUROPE 12257/7), could jeopardise the objective of achieving a primary budget surplus of 3.5% of GDP this year or even the following years, the document points out. These voted measures would indeed have a “fiscal cost” of more than 1% of GDP in 2019 and later.
And the implementation of the necessary reforms has slowed down in recent months, resulting in a risk that “most of the 15 specific commitments for mid-2019 will not be completed on schedule”.
“The [measurement] packages are costly and do not go in the right policy direction[...]. It is important not to waste the major progress made in the recent years”, said Mr Dombrovskis.
The situation in Greece is all the more closely observed as Mr Tsipras, the Greek Prime Minister, called for early parliamentary elections on 7 July, after his party's defeat in the European elections.
Significant deviation procedures. It should also be noted that Hungary and Romania have been singled out by the Commission.
Last year, the EU Council issued a recommendation to these two countries to make the necessary structural effort to meet their medium-term budgetary objectives (see EUROPE 12047/3).
Having observed a significant deviation with regard to these medium-term budgetary objectives in these two countries, the Commission therefore recommended that the EU Council initiate a significant deviation procedure against them.
Aggressive tax planning and anti-money laundering. In addition, the Commission has addressed aggressive tax planning in the country recommendations. The countries covered by this analysis are Cyprus, Hungary, Ireland, Luxembourg, Malta and the Netherlands. The institution recalls in its general recommendation that the transposition of EU legislation and internationally agreed initiatives “will help curtailing aggressive tax planning practices”. Mr Moscovici pointed out that Ireland and the Netherlands had nevertheless made some progress.
Last year in general recitals, the Commission pointed out seven countries whose tax regimes facilitated aggressive tax planning (see EUROPE 11976/9). At that time, Belgium, Cyprus, Hungary, Ireland, Luxembourg, Malta and the Netherlands were concerned.
In addition, recitals on the fight against money laundering were included in the recommendations addressed to Bulgaria, Denmark, Estonia, Latvia, Malta and Sweden.
Rather disappointing social results. The Commissioner for Employment and Social Affairs, Marianne Thyssen, gave a mixed picture of the social situation in Europe. On the one hand, she certainly highlighted the overall improvement in the employment situation in the EU. On the other hand, she did not fail to point out that very wide disparities remained between Member States, but also between regions, and between different types of populations. In particular, the Commission deplored the rise of the working poor.
The Commissioner also expressed concern about the increase in the number of atypical and self-employment jobs, a phenomenon that is reflected in an “erosion” of workers' social protection. Alongside inequalities on the labour market, the Commissioner has not failed to point out inequalities in education and training, particularly throughout life. Here too, Ms Thyssen insisted that the Member States should make an effort.
In general, the Commissioner warned of the risks posed by our ageing societies to pension, health and long-term care systems. In her view, one of the major challenges of tomorrow will be to combat “intergenerational inequality”. Finally, the Commissioner also seemed somewhat bitter about tackling gender inequalities in terms of pay and employment rates. “It is clear that we are not there yet”, she commented, hoping that the directive on work-life balance could change the situation somewhat. (Original version in French by Lucas Tripoteau with Pascal Hansens)