Member States have the flexibility to tackle the health crisis, but in order to prevent the mistakes made in the 2008 financial crisis, they should focus on the gradual economic recovery from the Covid-19 pandemic by investing in accordance with the EU's long-term strategic priorities, such as the transition to a decarbonised economy, digitisation of trade and upgrading workers' skills, says the European Commission in its socio-economic policy recommendations addressed to each of the 27 Member States on Wednesday 20 May.
“Urgent priorities include investing in health, protecting jobs, making sure companies have enough liquidity” and as we shift from a health emergency to economic recovery, “we will need to put our economies back on track towards sustainable and inclusive growth”, said Commission Vice-President Valdis Dombrovskis. “We underline that public expenditure and investment are important to support the green and digital transition”, said Commissioner for Economy Paolo Gentiloni, noting that “investment was the first victim” of the fiscal consolidation ten years ago.
The Commission confirms in its recommendations that no Member State, except Romania (see EUROPE 12459/17), will be subject to an infringement proceeding for an excessive deficit due to the expenditure incurred in dealing with the pandemic, in accordance with the freeze of the Stability and Growth Pact declared at the end of March (see EUROPE 12452/1).
Mr Dombrovskis did not say when the Pact's general escape clause would be lifted, due to uncertainty about the duration and extent of the economic crisis. However, he stressed that national public finances will have to return to a sound and realistic path after the freezing of European fiscal rules.
Socially, Commissioner for Jobs Nicolas Schmit warned against “the risk of fragmentation between countries and within our societies” linked to the “massive” increase in unemployment in Europe, especially among young people and disadvantaged social groups. “More than 30 million people are currently furloughed” in the EU, he noted, advocating the use of the SURE instrument by Member States to support national short-time working schemes. And to advocate a correction of the deficiencies of national health systems, manifested notably by a “crying” lack of professionals.
In the coming weeks, the Commission will present proposals to make the Youth Guarantee more robust and to stimulate investment in workers' skills ('new skills agenda').
It should be noted that the Commission's recommendations continue to highlight the phenomenon of aggressive tax planning. Six countries, Cyprus, Hungary, Ireland, Luxembourg, Malta and the Netherlands, are invited to take action to curb excessive competition in this area. In addition, particular attention will be given to the fight against money laundering in eleven countries: Bulgaria, Denmark, Estonia, Finland, Ireland, Latvia, Luxembourg, Malta, the Netherlands, Slovakia and Sweden.
According to the Commission's spring economic forecasts, the recession is expected to reach 7.4% of GDP in the EU in 2020, before rebounding to 6.1% in 2021 (see EUROPE 12481/1).
European Semester and the European Recovery Plan will be linked to each other
Asked by EUROPE about the low level of compliance by Member States with the recommendations addressed to them (see EUROPE 12490/12), Mr Dombrovskis wanted to see a “more nuanced” situation, with some countries making more progress than others and the European Semester budgetary process requiring a vision of long-term developments.
In its proposal on Wednesday 27 May on a European Recovery Plan, which will accompany the proposal for a Multiannual Financial Framework (MFF) 2021-2027, the Commission will propose the setting up of a specific instrument - the Recovery and Resilience Facility - to encourage Member States to direct European aid towards forward-looking expenditure and investment.
To benefit from the support of the future European Recovery Fund, Member States will submit national recovery plans. According to the European institution, they would be wise to take into account the recommendations presented on Wednesday, even if they don’t have a binding effect.
For Mr Dombrovskis, there will be “a clear link” between the recommendations integrated into the European Semester and the instrument in the making. He indicated that the approach envisaged for the EU-27 is equivalent to that envisaged for the Euro Area Budgetary Capacity (BICC), where the nineteen euro area countries will have to present reform and investment plans.
There will be a connection between the recovery plan and European strategic priorities, but this does not mean that the approach will be more robust in terms of “monitoring”, Mr Gentiloni relativised.
See the Commission Communication: https://bit.ly/2XkOkvE (Original version in French by Mathieu Bion)