The national budgetary policies put in place to mitigate the socio-economic impact of Covid-19 must be temporary, without being “ withdrawn prematurely”, insisted the European Commission on Wednesday 18 November, on the occasion of the presentation of the traditional ‘autumn package’, the second stage of the budgetary process of the European Semester 2021 launched in September (see EUROPE 12562/12).
This ‘autumn package’, which brings together all the reports that will be used to prepare the economic recommendations to be addressed to the individual Member States, is somewhat different from the previous ones, due to the freezing of the Stability and Growth Pact.
Thus, following the example of the country-specific socio-economic policy recommendations adopted by the EU Council on 20 July (EUROPE 12532/10), the opinions on the draft budget plans of the euro area Member States are ”qualitative in nature”, explained the European Commissioner for the Economy, Paolo Gentiloni.
Rather than setting quantitative budgetary targets, the opinions examine in particular “if the supportive budgetary measures announced for 2021 are temporary and, if not, whether offsetting measures are planned”.
However, although the Commission’s assessment is that all draft budgetary plans (DBPs) are broadly in line with the July EU Council recommendations (supporting economic activity in a context of considerable uncertainty), some measures presented in the DBPs of France, Italy, Lithuania and Slovakia “do not appear to be temporary or accompanied by offsetting measures”.
“I want to clarify that this does not mean that we are (...) considering as negative these measures”, Mr Gentiloni said. He went on to add: “The problem we are addressing is that of their non-temporary nature” (and not their content) .
While it is important that national economic and fiscal policies “must remain supportive in 2021”, Member States need to ensure that these national measures are “targeted, temporary and do not permanently burden public finances”, so as not to exacerbate the inevitable increase in public debt levels, added European Commission Executive Vice-President Valdis Dombrovskis.
In the case of Lithuania, however, the Commission invites Vilnius to submit a draft updated plan.
The institution also calls in particular on Belgium, France, Greece, Italy, Portugal and Spain to ensure the medium-term sustainability of their public finances, given the high level of public debt already reached before the pandemic.
Risks of rising macroeconomic imbalances
In addition, the Commission published the report on the alert mechanism, according to which Covid-19 increased the risks of macroeconomic imbalances in Member States that were already experiencing them before the pandemic.
In order to identify these imbalances and assess their seriousness, the Commission will therefore prepare, next spring, in-depth reviews for the nine Member States already identified as having imbalances (Croatia, Germany, Spain, France, Ireland, the Netherlands, Portugal, Romania and Sweden), as well as for Cyprus, Greece and Italy, for which an excessive imbalance had been identified.
Status quo for Romania
As the only Member State to be subject to an Excessive Deficit Procedure (EDP) since April 2020, Romania is expected to see its deficit exceed 10% of GDP this year and widen further in the coming years, ”due to the impact of the crisis and due to the absence of corrective measures”.
However, the Commission considers that no decision on further measures under the Stability and Growth Pact should be taken at this stage and will review Romania’s budgetary situation in spring 2021.
GREECE
In addition, the Commission has also published the eighth enhanced surveillance report on Greece, which concludes that the Greek authorities have taken the necessary measures to fulfil their commitments to the Eurogroup, despite the adverse circumstances caused by the Covid-19 pandemic.
“This can be the basis for the possible release of €767 million of debt relief measures by the Eurogroup”, Dombrovskis said.
Finally, the institution issued a recommendation on the economic policy of the euro area. In particular, it calls on Member States to ensure that their budgetary policies continue to support economic activity in 2021.
The Eurogroup and the EU Council will now examine the package with a view to approving the proposed guidelines. (Original version in French by Damien Genicot)
To consult:
- draft budget plans and Commission opinions: https://bit.ly/37dr8Wn
- the report on the alert mechanism: https://bit.ly/36R4kdg
- the eighth enhanced surveillance report on Greece: https://bit.ly/3nBPhv2
- the recommendation on the economic policy of the euro area: https://bit.ly/3pCDLkK