Faced with many geopolitical and macroeconomic uncertainties that remain, the European Commission called on Member States, on Wednesday 24 May, to maintain prudent fiscal policies to consolidate their public finances and to continue public investment through the implementation of their national post-Covid-19 recovery plans.
For the first time since we activated the general escape clause in March 2020, we have included “quantified recommendations on fiscal policies”, said Commission Executive Vice-President Valdis Dombrovskis, presenting the ‘European Semester’ spring package.
He recalled that the EU institution would not open excessive deficit procedures before spring 2024, while inviting Member States to take this deadline into account in their expenditure planning.
The European Commissioner for Economic and Financial Affairs, Paolo Gentiloni, set out the main fiscal policy messages: - dismantle, by the end of 2023, the emergency measures taken to tackle soaring energy prices, starting with the least targeted measures; - maintain a “prudent” fiscal stance in 2024, with the 22 Member States (all except Cyprus, Denmark, Ireland, Latvia and Sweden) with public deficits above 3% of national GDP being asked not to spend a quantitative limit (1.3% for Italy, 2.3% for France, 2.4% for Germany, 2.6% for Spain) on net primary expenditure growth; - safeguard public investment to boost climate and digital transitions.
According to a senior European official, on a no-policy-change basis compared to national budgets for 2023, the average EU fiscal stance will be “restrictive“ at 0.50 and 0.75% of GDP in 2023 and 2024 respectively.
In a report on compliance with European fiscal rules, the Commission notes that fourteen Member States (Belgium, Bulgaria, the Czech Republic, Estonia, France, Germany, Italy, Latvia, Hungary, Malta, Poland, Slovenia, Slovakia and Spain) do not currently respect the government deficit criterion and that France, Italy and Finland do not respect the government debt criterion.
See this report: https://aeur.eu/f/71a
The EU institution has also updated its reports on the post-bailout fiscal surveillance of Cyprus, Spain, Greece, Ireland and Portugal. According to the Commission, these five euro area countries are capable of financing their public debt on the financial markets on their own.
RRF. This gradual fiscal consolidation must be accompanied by continued investment, supported by the Next Generation EU Recovery Plan. “You cannot have a prudent fiscal policy without measures to support growth”, Mr Gentiloni insisted, acknowledging the difficulty of such an exercise.
The Commission considers that, overall, the implementation of the national reform Plans is proceeding well, with total disbursements now exceeding 150 billion euros. Nevertheless, some countries are invited to accelerate the implementation of investments and reforms in their national plans, as the deadline for Next Generation EU is 2026.
Thus, Poland and Hungary should, “as a matter of urgency”, complete all the necessary reforms in order to be eligible for a first payment under their respective national plans. Faced with the risk of “backlogging”, Italy, which receives the largest share of the EU budget, is urged to strengthen the capacity of administrations, especially local ones, to absorb EU funds.
In its ‘European Semester’ package, the Commission sets out socio-economic policy recommendations to help Member States increase their competitiveness. The focus is on reforms in the energy sector to accelerate the reduction of dependence on fossil fuels. The question of the current shortage of specific skills in the workforce is clearly raised.
Macroeconomic imbalances. The European Commission notes that, compared to the previous year, macroeconomic imbalances (public/private debt levels, trade balance, housing market, etc.) are tending to narrow. Seven Member States (Germany, Spain, France, the Netherlands, Portugal, Romania and Sweden) still have imbalances, while the imbalances in Greece and Italy are described as excessive.
See all the documentation related to the presentation of the Commission’s ‘European Semester’ spring package: https://aeur.eu/f/714
Employment and social affairs. Furthermore, the EU institution has proposed its guidelines for Member States’ employment policies in 2023. It considered that the current guidelines, adopted at the end of 2022, could be renewed, as they already take into account the effects of the Covid-19 pandemic and the Russian military aggression of Ukraine (see EUROPE 13068/23). Only a few figures have been adjusted.
For Paolo Gentiloni, with inflation becoming a “burden on middle incomes”, it is necessary to “maintain and strengthen social protection systems”. There is also a need to “strengthen the implementation of the Pillar of Social Rights” and to deliver on the targets set for skills development, poverty reduction or increasing the employment rate.
To support the green and digital transitions and strengthen the EU’s industrial base, “Member States should address labour and skills shortages and promote quality education and training, forward-looking vocational education and training, skills upgrading and lifelong re-skilling”, summarises the Commission. Active labour market policies will also strengthen the links between the education system and the labour market.
The EU’s headline targets for 2030 on employment (at least 78% of the population aged 20-64 should be working), skills (at least 60% of all adults should participate in training each year) and poverty reduction (at least 15 million fewer people at risk of poverty or social exclusion, including five million children), will, together with the Social Scoreboard, help to monitor progress in implementing the principles of the European Pillar of Social Rights.
The Communication further stresses that labour market reforms, including national wage-setting mechanisms, should respect national social dialogue practices and the autonomy of the social partners in order to provide fair wages for a decent standard of living and upward socio-economic convergence.
Link to the communication: https://aeur.eu/f/71f
Link to the November 2022 guidelines: https://aeur.eu/f/71t (Original version in French by Mathieu Bion and Solenn Paulic)