The European Commission did not reject any draft budgetary plan for 2020 submitted in mid-October by the 19 euro area countries on Wednesday 20 November. It simply asked eight of them – Belgium, Spain, Finland, France, Italy, Portugal, Slovenia, Slovakia – to make additional efforts by next spring as part of the normal budgetary examination procedure, considering that their draft budgetary plan contains a “risk of non-compliance with the Stability and Growth Pact”.
As no eurozone country is expected to run an excessive government deficit next year (above the 3% of national GDP threshold) (see EUROPE 12365/2), the Commission’s attention is now focused on compliance with the fiscal rules in the ‘preventive’ part of the Stability Pact.
“Among the budgetary plans found at risk of non-compliance, the ones that concern us most are those with debt levels that are high and not reduced fast enough”, said Commission Vice-President Valdis Dombrovskis.
The main countries concerned are “Belgium, Spain and France”, whose debt has reached almost 100% of national GDP (99.5%, 96.7% and 98.9%, respectively, estimated in 2019), as well as “Italy” (136.2%), four Member States that do not respect the public debt criterion.
Belgium and Spain, whose acting governments have submitted a draft budgetary plan without a change in policy, are thus invited to submit updated drafts as soon as a new government is formed.
According to Mr Dombrovskis, these countries have not taken sufficient advantage of the post-crisis period of sovereign debt growth in the euro area to consolidate their public finances and, in 2020, they are not considering significant fiscal adjustment, with some even considering fiscal expansion.
“This is worrying because very high debt levels limit the capacity to respond to economic shocks and market pressures”, he said. “We needn’t be gloomy, but let us also be aware that there are efforts to be continued and stepped up”, said Pierre Moscovici, Commissioner for Economic and Financial Affairs, who is going to Rome this Thursday, where he will meet the Italian authorities for his last official visit.
The two Commissioners recalled the importance for the Nineteen to prepare now for a more uncertain future, with wealth creation marking a significant deceleration (1.1% expected in 2019 and 1.2% in 2020 and 2021). The approach must be differentiated: highly indebted countries are under pressure to reduce their debt stock, while those with fiscal space – especially Germany and the Netherlands – are invited to invest to support growth. Nine countries will have a budget surplus in 2019.
That these last two countries have started to do so is “very good news” for themselves and the eurozone, Mr Moscovici said.
As for Italy, it will be necessary to closely monitor the evolution of public debt and, finally, to tackle the “structural problems” of the Italian economy, the Commissioner said. France too will have to make “more substantial structural efforts”, if it wants to be able to reduce its public debt.
Greece. Greece is now one of the good students in the Commission’s view. It was commended for a draft budgetary plan in line with the Pact and for its scrupulous compliance with the budgetary targets set when the 3rd financial rescue plan was finalised in 2018, namely a primary budget surplus (excluding debt servicing) of 3.5% of GDP each year until 2022.
Compliance with the commitments paves the way for a decision by Greece’s creditors on the granting of the planned assistance from the profits made by the national central banks on their acquisitions of Greek sovereign securities (SMP programme), Mr Dombrovskis said.
A discussion should take place at the December Eurogroup meeting on the advisability of allocating these payments for additional investments in the country, as requested by Athens.
But, according to the Vice-President of the Commission, any decision on a new budgetary path for Greece will have to be taken in the light of a new study on the sustainability of Greek debt. Given the level of Greek public debt (175.2% of GDP projected in 2019), “there is little scope for policy mistakes”, he warned.
In addition to Greece, eight countries – Austria, Cyprus, Germany, Ireland, Lithuania, Luxembourg, Malta and the Netherlands – have submitted draft budgetary plans for 2020 in line with European budgetary rules. The projects of two other Member States – Estonia and Latvia – are generally in line with the Pact.
Yellow cards for Romania and Hungary. On Thursday, the Commission also proposed to the EU Council to renew the procedure for significant deviation from the fiscal rules for Hungary and Romania.
Romania’s public deficit is widening rapidly and will exceed 3% of GDP in 2019, Mr Dombrovskis noted, calling on the Romanian authorities to tackle the issue head-on.
See the Commission’s position on the 2020 draft budgetary plans of the euro area countries: http://bit.ly/33UEvGh (Original version in French by Mathieu Bion)