Faced with the uncertainty created by the Russian invasion of Ukraine, the European Commission decided on Wednesday 2 March to review the macroeconomic situation in the “spring”, with a view to confirming or rejecting the re-establishment of the application of the Stability and Growth Pact from 2023.
At this stage, the outbreak of war in Ukraine and the repercussions of international sanctions on Russia “will weaken economic growth in the EU, but will not derail it”, said EU Economy Commissioner Paolo Gentiloni. As the situation in Ukraine evolves by the hour, it is too early to quantify such an impact.
The fiscal guidelines unveiled by the Commission set out five qualitative principles that will guide Member States in their macroeconomic policies for 2023, while a possible reform of the Pact, which could be on the table in the summer, is negotiated at EU level and implemented in the European Union.
These principles are very general and include the following: (1) policy coordination and a consistent policy mix; (2) ensuring debt sustainability through a gradual and high-quality fiscal adjustment; (3) encouraging investment and promoting sustainable growth; (4) promoting fiscal strategies consistent with a medium-term approach to fiscal adjustment, taking into account the NextGeneration EU Recovery Plan; (5) differentiating national fiscal strategies and taking into account the euro area dimension.
Commission Vice-President Valdis Dombrovskis noted that the economic fundamentals in the EU were “solid”. He called for a “broadly neutral” fiscal stance in the EU in 2023, close to the moderately expansionary position in 2022 (see EUROPE 12867/9).
On the consolidation of public finances, and in particular the pace of public debt reduction, he indicated that, in the current circumstances, the EU institution would not apply the Pact’s 1/20th rule. In normal circumstances, this rule requires Member States with a debt of more than 60% of national GDP to reduce the gap between their debt ratio and the 60% reference value by 1/20th per year (averaged over 3 years). It has never led to the triggering of excessive deficit procedures, as the Commission is comfortable with the invocation of exceptional circumstances by the countries concerned.
The Commission distinguishes between highly indebted and less indebted countries. The most indebted countries, such as Greece and Italy, will have to put in place a “credible” debt reduction strategy, without undermining growth and using the European Recovery Plan to maintain investment.
Moreover, the Commission has already announced that it will not open formal excessive deficit procedures next May, although it has not ruled out the possibility of doing so next autumn.
Reform of EU fiscal rules. The Commission also reviewed the state of play of the ongoing reflection on the reform of the European economic governance framework and announced a specific report by the end of the month.
It noted some of the key points raised: (1) striking the right balance between ensuring debt sustainability and promoting sustainable growth through investments and reforms essential for the success of the Lisbon Strategy; (2) paying greater attention to the medium term in fiscal surveillance; (3) learning from the operation of the Recovery and Resilience Facility; (4) simplifying the rules and strengthening national ownership.
See the Commission’s fiscal guidelines for 2023: https://aeur.eu/f/l1
Finally, the EU institution unveiled a communication in which it sees the challenges facing the EU as a justification for accelerating the ecological and digital transitions, provided that they are socially just. The pandemic and the invasion of Ukraine have revealed “vulnerabilities, including in the energy sector, which must be tackled to protect our European way of life”, it notes, for example.
See the paper: https://aeur.eu/f/l0 (Original version in French by Mathieu Bion)