The European Commission has proposed today to maintain the escape clauses of the Stability Pact until 2023. In this way, the rules on deficit and debt would remain frozen until the Community economy recovers. the levels it had in December 2019. The final decision rests with the capitals, but the Eurogroup is expected to make a positive statement in May.
The idea has been around for a long time. It is too early to return to fiscal normality. Governments need to spend and above all they need not to feel pressure. Many partners, especially tax hawks, wanted that, yes, more certainty, a roadmap for a return to the old days. What the Commission proposed and now confirms is that the rules remain suspended until the economy returns to pre-crisis levels, and according to the latest Brussels forecasts, that will not happen until 2023.
In reality, the way out of the crisis will be asymmetrical, as has been the impact so far. There are countries like Spain where the blow to GDP has been wild, at 11% in 2020. Others where the impact was less, since the average is below 7%. And some even that managed to grow, despite everything. So the reaction has to be careful. It is one thing for the whole of the Eurozone to return to where it was, and another for each and every one of its members to achieve it. “The Commission is committed to ensuring a coordinated and coherent political response to the current crisis. This requires credible fiscal policies that address the short-term consequences of the coronavirus pandemic and support recovery, without jeopardizing fiscal sustainability in the medium term. deadline. This Communication is intended to support those objectives, “says the statement released today.
The documents approved by the college of commissars, with the vice-president Valdis Dombrovskis and italian Paolo Gentiloni at the head, they defend that the coordination of national fiscal policies is essential to support the economic recovery. The Communication specifies that “fiscal policy must remain flexible and adapt to the evolution of the situation”, and therefore “warns against a premature withdrawal of fiscal support, which must be maintained this year and next.” Once “health risks diminish, fiscal measures should gradually shift towards more specific and forward-looking measures that promote a resilient and sustainable recovery and that fiscal policies should take into account the impact of the Recovery Fund. European”.
The European Commission proposed in March 2020, now a year ago, the activation of the general escape clause. It was the first time it was done. Member States were repeatedly urged to spend whatever it takes to sustain their economies and employment, “without respecting the requirements that would normally apply in the European budgetary framework”. Aid, through automatic stabilizers and fiscal packages, has reached 8% of European GDP, much more than in the 2008 crisis.
The initial objective of many was to return to the Pact this exercise, but the commissioners see it hastily. “In the Commission’s view, the decision should be taken after a comprehensive assessment of the state of the economy based on quantitative criteria. The level of economic activity in the EU or in the euro area compared to pre-crisis levels (late 2019) would be the key quantitative criterion for the Commission to make its overall assessment of the deactivation or continued application of the general escape clause. Therefore, current preliminary guidance would suggest continuing to apply the general escape clause in 2022 and deactivate it from 2023 “, says the text.
The final decision, however, will be made after a dialogue with the ministers and with the results of the Commission’s Spring forecasts, which will be published in the first half of May. That said, and to calm those most affected, the Commission notes that “the specific situations of each country will continue to be taken into account after the deactivation of the general safeguard clause. In the event that a Member State has not recovered to the level of economic activity prior to the crisis, all the flexibilities of the Stability and Growth Pact will be fully utilized, in particular when proposing fiscal policy guidelines “.
Today’s communication, before that May discussion, is due to the fact that all member states will have to send their Stability and Convergence Programs, their plans for recovery and access to funds, reforms through. To be able to complete them, capitals must also submit their medium-term fiscal paths, and to calculate them they require assistance and certainty about when the framework will change.
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