In the fiscal policy guidance for 2024 that it unveiled on Wednesday 8 March, the European Commission has already taken on board some of the elements of the future European economic governance framework that could apply starting in 2025, once the legislative reform of the ‘Stability and Growth Pact’ is ratified (see other news).
“The 2024 guidance should be seen as a bridge between how the [European budget] rules have worked in the past and how they may work in the future. This means that certain elements of the Commission’s reform orientations could already be built into the fiscal surveillance cycle starting in spring this year”, said the EU institution’s executive vice-president, Valdis Dombrovskis.
The Commission considers, first of all, that there is no reason to extend again, this time beyond the end of 2023, the activation of the general escape clause of the Pact which allowed, in spring 2020, to ‘freeze’ the European fiscal rules in order to allow Member States to deal with the Covid-19 pandemic, and then with the socio-economic consequences of the Russian military aggression in Ukraine.
“The European economy has recovered beyond its pre-pandemic level”, has weathered the acute phase of the energy crisis and, despite the uncertainty linked to geopolitical factors, the risks to growth are now “broadly balanced”, noted the European Commissioner for Economic Affairs, Paolo Gentiloni.
By the end of April, Member States will have to prepare stability and convergence programmes in line with the reform of the Pact suggested by the Commission last November and currently under discussion in the EU Council (see EUROPE 13121/3). They will have to set budgetary targets aimed at respecting the 3% public deficit threshold and bringing down their public debt in a “credible and continuous” manner over the medium term, said Mr Dombrovskis.
However, the 1/20th rule for public debt reduction, enshrined in the Pact, will not be applied, a European official said.
National programmes should also include reforms and investments that will contribute to the sustainability of public finances and accelerate the climate and digital transitions.
In May, the Commission will present country-specific socio-economic policy recommendations for 2024, which will have both quantitative and qualitative components, incorporate the net primary expenditure and be differentiated across countries according to the specific challenges of each national debt level.
The Commission also urges Member States to phase out emergency measures taken to support households and businesses in the face of soaring energy prices, starting with the least targeted measures. If public aid had been concentrated on the most vulnerable categories, it would have reached only 0.3% of GDP at EU level, not 1.2% as is currently the case, Mr Gentiloni pointed out, citing a study by his services.
Excessive deficit procedures. In its fiscal guidance, the EU institution announces that it intends to resume the infringement procedures in 2024, but only on the basis of the excessive deficit, taking into account the final Eurostat data for the year 2023.
Opening infringement procedures does not mean imposing sanctions, but rather agreeing on a credible path for consolidating public finances which, if respected, allows sanctions to be avoided, the source said. According to the Commission, before deciding to open a procedure, it will take into account the size of a Member State’s government deficit in relation to the 3% threshold and the path it is on to reduce it.
In the third quarter of 2022, twelve EU countries had a deficit of more than 3% of national GDP: Romania (-6.3%), Hungary (-6.1%), Belgium (-5.1%), France (-4.7%), Poland and the Czech Republic (-4.4%), Bulgaria (-4.3%), Spain (-4.2%), Malta (-4.1%), Germany (-3.8%), Austria (-3.6%) and Slovakia (-3.2%).
The Commission will incorporate elements of the proposed reform of the European economic governance framework into its fiscal surveillance policy because it is sufficiently confident that Member States will accept these principles, even though the Ecofin Council still has to formally adopt specific conclusions on Tuesday 14 March (see EUROPE 13135/14).
“We are confident that next week ministers will confirm the convergence of Member States on the reform of the European Economic Governance Framework”, the source said.
If this is the case, the Commission will present its legislative reform shortly after the Spring European Council, with the aim of adoption under the co-decision procedure before the end of the current legislature and application of the future EU rules from 2025.
See the Commission Communication: https://aeur.eu/f/5ot (Original version in French by Mathieu Bion)