Dombrovskis: ‘Unilateral decisions on refugees create new problems’

Dombrovskis told Spain that "of course" more needs to be done to strengthen the recovery. [European Commission]

It is high time to follow “prudent” economic policies, says European Commission Vice-President Valdis Dombrovskis. His call comes against the backdrop of global market turbulence, a revolt against EU fiscal rules in Spain and Italy, the Brexit debate in Britain, and the ongoing refugee crisis.

Valdis Dombrovskis is the Commission’s Vice-President for the euro. He was prime minister of Latvia (2009-2014).

Dombrovskis spoke in an exclusive interview to EURACTIV’s Jorge Valero.

A fresh revolt against the EU fiscal rules is emerging from the Southern European member states. Is it the right time to be more understanding, or are you willing to apply the rules whatever the circumstances?

As guardians of the treaty, it the Commission’s duty to uphold EU rules, including the Stability and Growth Pact. We are doing so, while also making the best use of the flexibility within the pact. That has been the Commission’s approach, and the one we are applying, especially in the current economic situation, where we see a slowdown in emerging markets, and increased volatility and risk awareness in the financial markets.

It is actually even more important to follow prudent economic policies, and to strengthen the resilience of our economies to be able to withstand this turbulence.

The big battle will come in May, when the Commission will issue its country-specific recommendations. Spain and Italy seem to be the most problematic cases. In the case of Spain, a united front of all parties is asking for more time to adjust the deficit. Given that the country will not meet the deficit target for this year, it seems inevitable that an extension would be needed under some conditions. What would you demand of Spain in return for an additional year?

I cannot confirm that there are any decisions or negotiations ongoing as regards to an additional year. These decisions will be discussed and taken once the 2015 data is confirmed by Eurostat. Indeed, according to preliminary data, which is also included in our winter forecast, there is a possibility that Spain has not met its deficit target last year. For this year, Spain’s budget is also at risk of non-compliance with the Stability and Growth Pact. We will take a decision in spring.

The message for Spain over the last few weeks is that, regardless of which party or coalition takes power, the country needs to adopt more adjustments. Is this still the message, or will you consider granting some breathing space to the new government?

First, one must recognise the substantial reform effort and fiscal adjustment that Spain has undertaken in previous years. We see that now Spain is among the fastest growing economies of the eurozone. Reforms implemented in the labour market are also bearing fruit, unemployment is clearly declining. Last year this progress was particularly visible. Of course we see that there is still a high level of unemployment and more needs to be done to strengthen the recovery and job creation.

Regarding Spain’s efforts to implement the 2015 country-specific recommendations, the Commission’s assessment is that, overall, Spain has made some progress in implementing these recommendations, and the country is somewhere around the EU average. Other countries have registered only limited progress. One should acknowledge that a lot of things have been done and Spain is seeing a clear economic recovery.

At the same time, the Commission’s opinion on Spain’s budget has not changed, and there is still a risk of non-compliance. As with all countries, we urge Spain to take measures to ensure compliance with the Stability and Growth Pact. Spain has to submit and updated budgetary plan, since not all the information, notably local and regional data, was included in the draft budgetary plan presented to the Commission in autumn.

Are you concerned about the political instability in Spain?

As you know, the Commission refrains from commenting on party politics in a member state. It is for Spanish authorities to form a new government according to their constitution.

Since December, there hasn’t been a government in place to implement the reforms and adjustments, and it seems quite likely that there would not be one in time for May’s country recommendations. Is that a concern for you?

It is clear that political developments do not free member states from fulfilling their obligations in the context of the Stability and Growth Pact, and also in their preparation of the relevant documents for the European semester.

This is also the case for Spain. So we expect like with any other member state, the preparation and the submission of the national reform programmes, which is now the next step in the European semester.

On top of this fiscal revolt, in spring, the number of refugees arriving to Europe is expected to increase, while the in-or-out referendum in the United Kingdom will be only a few weeks away. Is the perfect storm looming just before the summer break?

The situation is certainly very complicated. We need urgent action. First and foremost, in regards to the refugee crisis. From the Commission’s point of view, we emphasise the need of coordinated action and the need for implementation of the agreed decisions. We see progress, but we need faster progress. We are seeing how member states are taking unilateral actions, which creates new difficulties.

On the United Kingdom, an agreement was reached by the EU heads of state and government. Now the decision is with UK voters. On the economic side, as we pointed out in the winter economic forecast, we see increased volatility and risk awareness in the markets, which reinforces the need to continue with prudent economic and fiscal policies.

Do you plan to prepare a study on the potential cost of a Brexit for the EU?

We will not engage in quantitative estimates. The qualitative assessment is known. Economically, it is much more beneficial for both the EU and the UK to stay together.

As part of the UK-EU agreement, Britain obtained certain privileges in relation to eurozone integration. Will this slow down the integration process?

The agreed ‘emergency brake’ is a sensible compromise. On the one hand, it allows the UK to react and bring certain issues to the Council if the UK or any non-euro area country is affected in a negative way. On the other hand, it does not constitute a veto, since it does not prevent  the eurozone from taking the necessary decisions.

When discussing further deepening of the economic and monetary union, the approach we are taking is that we need to be as open and transparent to the rest of the EU as possible. Whenever possible with the new initiatives that we are taking, they should be open for non-eurozone countries to join if they wish so.

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