The European Commission published on Wednesday (2 June) its Spring package, including the recommendation to maintain the Stability and Growth Pact – a set of fiscal rules for EU countries – suspended in 2022.
The EU’s framework to coordinate national economies this year has been shaped by the recovery and resilience plans. The Commission’s executive vice-president for economy, Valdis Dombrovskis, told a group of media including EURACTIV that overall, the EU executive is satisfied with the recovery plans submitted by 23 member states.
A total of 13% of the Recovery and Resilience Facility funds will be allocated for prefinancing once the plans are approved. That would be a lot more money than markets can absorb in terms of EU debt. What percentage will finally go for the prefinancing of the plans and how do you expect to distribute the funds?
We would expect the first payments on the Recovery and Resilience Facility (RRF) normally in July. We will provide a first assessment of the recovery and resilience plans in the second half of June. It’s for the Council to see how it organises its work because it has a month for its own assessment. The intention of the Slovenian Presidency is to prepare the first decisions already in July Ecofin, if possible. But I cannot tell exactly the number and list of member states which is going to be part of the first batch of countries. It is not going to be all member states that have submitted their plans so far. They submitted their investments and reforms proposals on different dates and there is some level of adjustment and fine-tuning ongoing. For example, in terms of the milestones to unlock the funds and targets, or cost estimates. But there will be indeed a substantial number of countries that will be in this first batch. We intend to continue with this process of assessment in July and putting forward additional draft Council implementing decisions Maybe there is the possibility to organise a virtual Ecofin at the end of July if it facilitates the approval process.
But how will the funds be distributed to cover the pre-financing needs, given the limited amount that could be borrowed from the markets by July?
Normally, the amount of prefinancing is 13% of the amount that member states will receive from the RRF. Whether we can raise this overall amount in the markets in one go depends first of all on how many countries and how many big recipients of funds are in this first batch. It also depends on the market conditions. But we have already signalled that it may come in instalments. If we are not able to raise the whole money for prefinancing in one go, we will release the money to member states as we are able to raise it. In this case, member states will receive the funds on pro rata basis. The number of countries in the first batch will depend on the assessment process. I cannot give you an exact number of countries. You may the guests between 10 and 15 countries. That sounds plausible.
You said that, in some cases, adjustments are needed in the national recovery plans. Could you explain how this adjustment process works?
We do a lot of work with member states already in the preparation phase of the plans. Overall, we are quite satisfied with the contents of the plans submitted. They seem to meet the green and digital targets and to address a significant subset of country specific recommendations. Therefore, we hope that there will be no need for a major overhaul of the plans. But, at the same time, this work on fine-tuning continues. It’s not that plans are submitted and everything is ideal, and then it leads to a positive assessment. There are technical level consultations and maybe some requests for additional information, or for more clarity on milestones and targets. Or there may be questions on some of the cost estimates of the project. As I said, lots of technical work ongoing as part of the assessment, and it may lead to some adjustments and precisions in the plan. But normally speaking, we are not talking about major overhauls.
Are you concerned that, in the coming months, the battle lines will be redrawn between those member states that are keen to return to the fiscal orthodoxy of the past and those who believe that the pandemic has shown that there’s a need for a radical overhaul of the fiscal rules? Where do you stand?
Later in the year, we expect to relaunch the public consultation on the review of the Stability and Growth Pact, which we launched before the pandemic. We are not coming in a sense with precooked ideas or concepts. We will be looking at the input we will be getting in the public consultation from member states and from different stakeholders, and we will draw a potential way forward. What we would need to do is an overall simplification of the fiscal framework, ensuring that it facilitates more counter-cyclical fiscal policies, both in bad and good economic times. We will need to work also on questions related to the sustainability of public debt in the context of elevated public debt levels that we will see while exiting the crisis. Of course, we will need to seek consensus, because otherwise we will not be able to move forward and we will be stuck in some kind of divisive debate. This consensus-building will be a very important element.
One of the most divisive issues is the possibility to include in the Stability and Growth Pact the so-called golden clause to support investment in some priority areas. As a result of the new economic paradigm, now there seems to be more openness towards this golden clause. Is that your case?
As I said, we will enter this public consultation without precooked ideas and we will listen to member states and stakeholders. This is part of the discussion. Before this public consultation, the European Fiscal Board came exactly with some of the elements we want to asses, including the simplification, the counter-cyclicality or concentrating on an expenditure benchmark with a debt anchor. The Board also raised the point of what they called a limited golden rule. This input from the European Fiscal Board was welcomed from our side.
[Edited by Zoran Radosavljevic]