In a report published on Wednesday 3 July, the European Fiscal Board (EFB) recommends “a sizeable restrictive fiscal impulse” in 2025 at euro area level in light of the macroeconomic situation and the gradual implementation of the reform of the Stability and Growth Pact.
The EFB believes that this budgetary effort should be focused primarily on those member states with very high debt levels, citing “Belgium, Greece, Spain, France and Italy”. These countries should “seize the opportunity to make an extra effort to reduce their underlying budget deficits”, in line with the “risk-based and country-specific approach underpinning the reformed framework”, it added.
To justify this position, the EFB highlights the fact that on the basis that the policies do not change, the structural deficit at euro area level would amount to 2.8% of GDP, a level it considers inappropriate given the economic rebound expected next year and a very high employment rate.
The European Committee is of the opinion that the reformed version of the Pact does contain “innovations”, in particular in accounting for the situation of each country and the medium-term outlook. However, in their opinion, the European fiscal rules have not been simplified and their implementation is shrouded in uncertainty.
Speaking to a number of journalists, the Chair of the EFB, Niels Thygesen, urged the European Commission and the Council of the EU to apply the new rules in a timely manner, in particular by implementing the excessive deficit procedures (EDP), which should apply to seven Member States – Belgium, France, Hungary, Italy, Malta, Slovakia and Poland (see EUROPE 13435/1). These procedures are due to be launched at the Ecofin Council meeting on Tuesday 16 July.
In the opinion of the Committee, presenting the quantified budget path recommendations in the autumn so that they are aligned with the presentation of the Member States’ first multiannual macro-budget plans under the reformed Pact creates “a precedent” for the launch of EDP procedures, fuelling uncertainty about the euro area’s budgetary stance in 2025.
In addition, the European Committee highlights the fact that there is a lack of clarity with regard to how budgetary slippages, which are currently emerging in several countries in 2024, will be dealt with. It continues to say that, from 2025 onwards, relying solely on monitoring national public spending “puts fiscal stabilisation ‘autopilot’”.
In October, the EFB will present a report on various different options for financing public goods at national and European level.
To see the report by the European Fiscal Board, go to: https://aeur.eu/f/cxj (Original version in French by Mathieu Bion)