The European Commission suggested opening excessive deficit procedures (EDP) against seven EU Member States – Belgium, France, Hungary, Italy, Malta, Slovakia and Poland – on Wednesday 19 June, when it presented its fiscal and socio-economic policy proposals as part of the ‘European Semester’ process.
The Commission’s Executive Vice-President, Valdis Dombrovskis, and the European Commissioner for Economic Affairs, Paolo Gentiloni, stressed that the prospect of initiating such proceedings came as no surprise, given that the Stability and Growth Pact has been in force again since January 2024, after almost four years of interruption due to the economic difficulties caused by the Covid-19 pandemic and Russia’s military aggression against Ukraine.
“After almost four years of the General Escape Clause, our economic and fiscal policies enter a new cycle. This does not mean back to normal (...). Much less, back to austerity – because this would be a terrible mistake”, said Mr Gentiloni.
In March, based on official figures for 2023, the Commission had already noted that eleven Member States had deficits above the maximum threshold of 3% of GDP: Spain (-3.6%), Estonia (-3.4%), the Czech Republic (-3.7%), Belgium (-4.4%), Malta and Slovakia (-4.9%), Poland (-5.1%), France (-5.5%), Romania (-6.6%), Hungary (-6.7%) and Italy (-7.4%) (see EUROPE 13410/4).
This group includes all seven of the countries identified. On the other hand, the Commission considered that it was not necessary to open an EDP procedure against Spain or the Czech Republic, because these two countries are expected to reduce their deficits below the reference threshold in 2024. The same applies to Estonia, which has a very low level of public debt, and which has cited the sharp increase in its defence investment (quantified at 0.5% of GDP in 2024 and 2025) as a ‘relevant factor’ in the new legislative framework explaining a deviation from the fiscal path.
The Romanian case is a little different, in that Romania has already been subject to an EDP since 2019. On Wednesday, the Commission found that the country had not taken the necessary corrective measures and that it had excessive macroeconomic imbalances. Bucharest will receive a quantified recommendation for fiscal adjustment in November. However, the Commission is making it clear that it will not apply the rules that make the granting of European funds conditional on compliance with the fiscal path of conditionality, because the EU has been through a long period of economic turbulence.
As 2024 is a transition period towards the application in 2025 of the revised Stability Pact (see EUROPE 13348/8), the institution is proposing a budget timetable adapted accordingly. If the EU Council supports its approach, it will formally recommend in July that the EDP procedures be opened against the seven countries, with a decision by the Ecofin Council expected on Tuesday 16 July. But it is not expected to propose quantified fiscal consolidation paths until November.
In the meantime, at the end of the week, the Commission will submit an indicative ‘technical trajectory’ to the Member States, which will help them to prepare their respective macro-fiscal programmes, lasting between four and seven years, which they will present to the European level by 20 September at the latest. Their draft budgets for 2025, due in mid-October for the euro area countries, will be set in this multiannual context. In November, the EU institution will at the same time make recommendations on these two fiscal documents and on the deficit reduction path for countries under the EDP procedure.
“We are in a year of transition” and a space for dialogue with the Member States is necessary, stressed Mr Dombrovskis, when asked about the time lag between the opening of an EDP procedure in July and the presentation of the recommendation on the path for consolidating public finances in November. He confirmed that in November, in accordance with the revised rules of the Pact, the Commission could very well recommend that countries subject to an EDP procedure carry out a fiscal adjustment in excess of 0.5% of GDP.
CSR. In its socio-economic policy recommendations, the Commission stresses the importance of Member States boosting their competitiveness. This involves stimulating innovation, facilitating access to finance, particularly private finance, and measures to promote the education of young people and the training of workers.
The EU institution also stresses the importance for the EU27 to make the best possible use of the European funds available, in particular through the RRF Facility, the fiscal instrument of the NextGenerationEU Recovery Plan, and cohesion policy, whose national operational programmes will be reviewed at mid-term. Specific recommendations are made to use up the support granted under the post-Covid-19 national recovery plans more quickly.
“Several Member States face accumulated delays and challenges in implementation. With the RRF’s cut-off date fast approaching by the end of 2026, they must address these issues urgently”, said Mr Dombrovskis.
Macroeconomic imbalances. The Commission also presented the results of its detailed assessments of the macroeconomic imbalances observed in twelve countries.
Eight of them – Cyprus, Germany, Greece, Hungary, Italy, the Netherlands, Sweden and Slovakia – continue to show imbalances, while Romania’s imbalances are considered excessive.
Spain, France and Greece no longer have macroeconomic imbalances, according to the EU institution.
Employment. In addition, the Commission has proposed revising the guidelines that set common priorities for national employment and social policies in 2024 to make them fairer and more inclusive. This update adds elements relating to skills and labour shortages, in line with the dedicated action plan presented in March (see EUROPE 13375/13), as well as references to new technologies and their impact on the world of work.
The European Commissioner for Jobs and Social Rights, Nicolas Schmit, also explained that the EU27 still needed to make progress if they are to achieve their objectives in terms of getting people back to work, but also in terms of reducing poverty (lifting 15 million people out of poverty, including 5 million children, by 2030, compared to 1990 levels).
Also included in the revised guidelines are references to legal immigration, including in relation to the recognition of skills of third-country nationals and in the light of the EU Talent Pool (see EUROPE 13431/4).
In 2023, the employment rate in the EU reached a record high of 75.5% of the working population. The unemployment rate fell to 6.1%, while youth unemployment rose slightly from 14.3% to 14.9%.
To see the documents of the European Semester Spring Package process: https://aeur.eu/f/cqx
To see the revised employment guidelines: https://aeur.eu/f/cqd (Original version in French by Mathieu Bion and Solenn Paulic)