The high level of public spending observed in 2023 and up to 2024, despite the restrictive budgetary stance agreed at European level, points to a “difficult start” for the implementation of the revised Stability Pact, warned the chairman of the European Fiscal Board (EFB), Niels Thygesen, as he presented the board’s annual report on Wednesday 2 October.
Observing the budgetary performance of the Member States in relation to the macroeconomic situation in 2023, the European board notes that, overall, the public deficit has not decreased between 2022 and 2023 despite the gradual phasing out of the poorly targeted emergency budgetary measures, which were intended to support households and SMEs in the face of inflation caused by the energy crisis. This situation can be explained in particular by an acceleration in public spending, excluding temporary measures, mainly on social protection, health and stimulating the economy, especially in EU countries that are already heavily indebted.
“EU fiscal guidance and monitoring turned a blind eye on underlying expenditure, focused on demand management and overlooked large structural deficits and related sustainability challenges”, the European board noted.
In addition, European experts are criticising the European Commission for its late initiation of excessive deficit procedures (EDP) for seven Member States: Belgium, France, Italy, Hungary, Malta, Poland and Slovakia (see EUROPE 13449/17). In their view, this initiative could have taken place from 2023 and should have involved Spain, whereas the EU institution has invoked macroeconomic “uncertainty” to maintain the status quo. Furthermore, they believe that initiating EDP procedures in June 2024 without at the same time providing recommendations on the budgetary consolidation path for the countries concerned should not constitute a precedent.
The EFB nevertheless sees the fiscal rules as a step forward, the credibility of which will depend on rigorous implementation of both the corrective and preventive arms of the Stability Pact, at a time when public support for the budgetary effort is far from guaranteed and when the challenges facing the EU in terms of competitiveness require massive investment.
In this respect, the European Fiscal Board is of the opinion that the question of “European public good”, omitted during the reform of the Pact, must be raised again. He even sees a “complementarity” between joint initiatives to help finance investments of common interest, for example in defence and energy, and the budgetary virtue at national level encouraged by the revised Pact, a complementarity that would make it possible to create budgetary room for manoeuvre at EU level.
“Given the blending of long-existing and newly emerging fiscal challenges (ageing, climate change and geopolitical tensions), leaving all the additional investment needs to the national budgets and/or to the private markets would not be realistic”, the European board considers. In its view, “several options” exist for strengthening the provision of European public goods, while ensuring that the methods of financing and design “do not lead to a hidden form of redistribution among countries”.
See the report: https://aeur.eu/f/doe (Original version in French by Mathieu Bion)