Moscovici wants to make EU deficit rules more flexible

Commissioner for Economic Affairs Pierre Moscovici said it would have been "masochist" suspending EU funds for Spain at this stage. [European Commission]

Pierre Moscovici has said he hopes all the EU’s excessive deficit procedures will be over by 2017. A change in the European deficit rules may be on the horizon. EURACTIV France reports.

The European Union appears to be reaching the end of the debt crisis.  At least, that is what Moscovoci, the European Commissioner for Economic and Financial Affairs, believes.

“The time of high public deficits is over,” the French former minister of finance told a press briefing in Paris on Monday (23 May).  National debts among EU member states exploded after the beginning of the crisis.  But in 2017, the average public deficit of European countries is set to pass below 2% of GDP.

Only six member states are currently under an excessive deficit procedure (Croatia, Spain, France, Greece, Portugal and the United Kingdom).  For many observers, this is a sign of the crisis coming to an end. In spring 2011, there were 24.

“In 2017 I hope that all countries will have come out of their excessive deficit procedures,” the commissioner said.

New rules?

The clearing up of Europe’s deficits should open the door to a change in the rules of the Stability and Growth Pact (SGP).  “We will begin a real process of reflection on the rules, not to weaken them, but to make them more visible and transparent,” Moscovici said.

“They can be made more intelligent, everyone agrees,” he added.  “I do not want a revolution, but an evolution that makes more sense on an economic level.”

Brussels piles pressure on Spain and Italy to balance their budgets

The European Commission will send a series of warnings to Spain, Italy, Finland, Romania and Belgium today (8 March) because of their “serious” deviations from agreed-on fiscal paths, has learned.

This decision is not unconnected to the latest announcements of the executive regarding the Spanish, Portuguese and Italian cases. The two Iberian countries infringed the SGP rules by allowing their deficits to grow far above the permitted levels.

In Madrid, the 2015 deficit was significantly above the target of 4.2% of GDP, making the 2016 target of 3% unachievable.  In Lisbon, the deficit reached 4.4%, compared to a target of 2.5%.

But despite this gap, Brussels has treated the Iberian Peninsula with leniency, deciding to delay any decision on sanctions until after July.

Commission to punish Spain and Portugal, ‘pardon’ Italy, on deficits

Spain and Portugal will get only one extra year to fulfil EU fiscal rules on their defecits, once sanctions against both countries are adopted, while Italy will escape an infringement procedure, has learned.

Italy has also been indulged by Brussels over the too-slow reduction of its considerable national debt (133% of GDP). For the Commission, Matteo Renzi’s programme was a sufficient guarantee.

“The European Commission has not abandoned its duty regarding Italy, Spain and Portugal,” Moscovici insisted.  “The pact is not an excuse for stupidity.”

For the Commissioner, the executive’s choice not to put even more pressure on these countries “has been a wise one”, particularly for Spain, which is in the middle of an electoral campaign for the upcoming elections.

Spain overtakes France as the eurozone’s problem child

France’s budget deficit is unlikely to fall below 3% of GDP by 2017. But the deterioration of Spain’s public finances may save Paris the worst criticisms. EURACTIV France reports

And for the public it would be hard to understand if the Commission were to impose sanctions on Italy and not Spain, for example.  But this leniency risks undermining the Commission’s political position on the subject.

Credibility test

“As the rules are not completely respected, their very credibility is on the line. The decisions on Portugal and Spain are an admission of defeat for all the rules of the Growth and Stability Pact,” said Jérôme Creel, the director of the department of studies at the French Economic Observatory (OFCE) and a professor at ESCP Europe, a business school.

“We can see that Commissioner Moscovici would like to change the lines of the issue,” the researcher said.  “Today, we have at least five budgetary rules, so there is room to improve and simplify them.”

Guindos: Growth is more important than few decimal points of deficit

“Given the global situation, the most important thing is economic growth”, Spain’s Economic Affairs minister, Luis de Guindos, said after the Ecofin council on Friday (12 February).

The EU’s budgetary rules are more restrictive now than they have been in the past. After the 2008 crisis, legislators introduced new indicators. But the increase in restrictions has not always led to them being followed more closely.

“We have to limit the number of budgetary rules that must be respected and stress the importance of the structural deficit, rather than reducing the total deficit to 3%. It is harder to understand,” but it’s a more intelligent rule because it has a real economic logic, according to Jérôme Creel.

Another possible method is to alter the rules depending on the economic models of the various European countries. “Having different budgetary rules from one country to another, which take into account the differences between the states, that would be a big step,” the economist said.

The excessive deficit procedure is laid out in article 126 of the treaty on the functioning of the European Union. This article obliges the member states to avoid excessive deficits in national budgets.

The Commission evaluates the data and the Council decides what constitutes an excessive deficit. The Commission puts together a report, taking into account all the factors (economic conditions, reforms, etc.) that may be relevant  for deciding whether the deficit is excessive.

If the Council decides that a member state's deficit is excessive, it begins by making appropriate recommendations. The state concerned then has a precise timescale in which to bring the situation under control. If the state does not conform to the recommendations, the Council give them formal notice to take measures  to reduce the deficit. If required, the Council is able to hand out sanctions or fines, or to invite the European Investment Bank to review its lending policy regarding the state concerned.

A deficit is considered excessive if it is above 3% of GDP. A 1997 Council regulation clarifies and accelerates the excessive deficit procedure.

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