Commission: Suspension of the debt rule in 2023

By Tasos Dasopoulos

The suspension of the debt rule for 2023 is the first change envisaged in the preliminary guidelines of the European Commission for 2023, once again postponing the discussion on the changes in the fiscal rules for October.

Both Vice-President of the Commission Valdis Dobrovskis and Commissioner for Economic Affairs Paolo Gentiloni spoke of growing uncertainty and ever-changing conditions for the world and European economies due to the war in Ukraine.

They also stressed that the current guidelines are temporary and that they will be reconsidered along with the possible extension of the postponement of all fiscal rules in May with the Commission’s spring forecast.

Among the guiding principles of the budget for 2023 stands out the note addressed to Greece and the other heavily indebted countries, with the Commission noting that despite the removal of the rule for the reduction on an annual basis of 1/20 for a debt ratio above the limit of 60% will have to show progress in 2023. In other words, they will have to reduce their debt and create capital reserves in order to be able to absorb the pressures.

The guidelines

The text of the Commission recommendations for fiscal policy guidance for 2023 lists the major risks of war, makes it clear that fiscal policies are being reviewed and that it will be reconsidered by May, depending on developments. the escape clause will be extended to 2023.

In any case, he clarifies that in 2023 the toughest of the rules of the Stability Pact will not apply, the rule of debt reduction by 1/20 per year in the part that exceeds 60% of GDP.

It is becoming clear that the escape clause (activated in 2020 for the pandemic) is useful today to support the states economies and states that the return to fiscal discipline will take place when normalcy is restored, with the creation – then – of airbags and for debt reduction (s.s. with reference, however, during the press conference in Greece, to the need to ensure a credible debt reduction strategy afterwards, recognizing that the recommendations announced today apply to our country).

The conclusion points out that the consequences of the war are still unknown, that there will be no sanctions this year for fiscal deviations, but also that fiscal policies must be ready for a “reaction”.

“The invasion of Ukraine is expected to have a negative impact on the outlook, which has become more uncertain with forecasts deteriorating,” it said.

The “general escape clause” will continue to apply in 2022 and “this will allow fiscal policy to adapt to the evolving situation to meet the immediate challenges posed by this crisis. Based on the Commission’s winter forecast for 2022, the general “It is expected to be deactivated by 2023, but this will be re-evaluated based on the Commission’s 2022 spring forecast in view of the high uncertainty”, it is typically pointed out.

It is also noted that Russia’s invasion of Ukraine has undermined European and global security and stability. Recent events are a milestone for Europe, effectively calling into question peace. The EU stands with Ukraine in political and economic solidarity.

In response to Russia’s unprovoked and unwarranted military action, he also described the package of sanctions “which will have the greatest impact on the Russian economy and political elite”, as well as the fact that “the EU faces some immediate challenges, especially with regard to refugee flows.” , security and possible countermeasures by Russia “.

“This crisis risks negatively affecting growth, including through the effects on the financial markets, further pressures on energy prices, additional pressures on the supply chain and effects on the climate of confidence,” it said. It is becoming clear that extreme uncertainty and risks require “strong coordination of economic and fiscal policies to move beyond the COVID-19 crisis.”

Finally, it sets out five key principles in its financial recommendations, which will be finalized in May:

• Policy coordination and a consistent mix of policies should be ensured

• Debt sustainability should be ensured through a gradual and high quality fiscal adjustment and economic growth

• Investment must be encouraged and sustainable development promoted

• Fiscal strategies consistent with a medium-term fiscal adjustment approach should be promoted, taking into account the Recovery Fund

• Fiscal strategies should be diversified and take into account the dimension of the euro area