Euro area finance ministers believe that “a supportive fiscal stance for the economy is appropriate for 2021”, in order to tackle the recession triggered in 2020 by the Covid-19 pandemic and to revive the economy in 2021.
According to the Eurogroup, meeting on Wednesday 16 December by videoconference, the fiscal policy of the Euro area will still have to be expansionary next year through “well-targeted and temporary” measures.
If the economic situation improves, some of these measures could be gradually reviewed and adapted in the light of a rapid vaccination of the population and with a view to ensuring the sustainability of public finances in the medium term. However, in order to avoid the mistakes of the past which led too quickly to budgetary austerity, it will be necessary to avoid insurmountable ‘cliff edge effects’ for economic operators whose public support would dry up too quickly.
“There is a very strong consensus among ministers in favour of budgetary policies that, for the end of 2020 and the year 2021, support the economy while efforts are made to make vaccines available” against Covid-19, said the president of the Eurogroup. According to Paschal Donohoe, it is too early to say when a debate on deactivating the freeze on the Pact will take place. And the Eurogroup will start to advocate a shift in fiscal policies from emergency measures to more recovery oriented support only when confidence in the health situation is firmly established.
The expansionary fiscal stance in the EU is allowed by the European Commission’s decision to freeze the application of the Stability and Growth Pact sine dieso that Member States are able to overcome the health and economic costs of the pandemic. These emergency measures amount to a total of 4.2% of EU GDP in 2020 and 2.4% of GDP in 2021, albeit with significant national disparities, the Eurogroup noted.
2021 draft budgetary plan. Furthermore, Ministers endorsed the Commission’s analysis that all draft budget plans of the euro area countries for 2021 are broadly in line with the country-specific socio-economic policy recommendations adopted in July (see EUROPE 12604/1).
Without explicitly naming the countries concerned (France, Italy, Lithuania and Slovakia), the Eurogroup also notes that some of the measures adopted as a matter of urgency “do not appear to be temporary or accompanied by compensatory measures”, and that these measures, even if they are of a structural nature, affect medium-term budgetary sustainability.
For France, the decision to lower production taxes is in the Commission’s sights.
The European Commissioner for the Economy, Paolo Gentiloni, stressed that the Commission does not make a negative assessment of these measures of a permanent nature. “We’re just saying that future annual budgets will have to sustain them”, he said.
See the Eurogroup statement: http://bit.ly/37qTqg6 (Original version in French by Mathieu Bion)