The European Commission has presented its Opinions on euro area Member States’ Draft Budgetary Plans for 2020, taken steps under the Stability and Growth Pact and adopted the fourth Enhanced Surveillance Report for Greece.
Since July this year and for the first time since 2002, no euro area Member State is under the Excessive Deficit Procedure. The euro area debt-to-GDP ratio is expected to continue its declining path of recent years and to fall from about 86% in 2019 to about 85% in 2020. This is happening against the backdrop of a weakening European and world economy.
Vice-President Valdis Dombrovskis, responsible for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union, said: "With mounting risks weighing on Europe's economic growth prospects, it is reassuring to see euro area countries like Germany and the Netherlands using fiscal space to support investment. However, there is scope for them to do more. On the other hand, Member States with very high levels of debt – such as Belgium, France, Italy and Spain – should take advantage of the lower interest expenditure to reduce their debt. It should be their priority."
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: “For the past five years, this Commission has carefully assessed the Draft Budgetary Plans of euro area Member States. With this year's opinions, we confirm our commitment to a flexible, intelligent application of our common rules, guided by an awareness of the economic reality in each country and in the euro area as a whole. In that sense, the Commission invites countries with high debt to pursue prudent fiscal policies, while encouraging those with fiscal space to invest further. This differentiated approach will strengthen the euro area.”
Assessment of the Draft Budgetary Plans of the euro area Member States
Following the recent Autumn 2019 Economic Forecast and consultations with the Member States, the Commission has adopted its Opinions on the Draft Budgetary Plans of all euro area countries. It has found that no Draft Budgetary Plan for 2020 shows particularly serious non-compliance with the requirements of the Stability and Growth Pact. Nine Member States' Plans are compliant with the Stability and Growth Pact in 2020; two Member States are broadly compliant and for eight Member States, the Plans pose a risk of non-compliance with the Stability and Growth Pact next year.
The Draft Budgetary Plans of Germany, Ireland, Greece, Cyprus, Lithuania, Luxembourg, Malta, the Netherlands and Austria are found to be compliant with the Stability and Growth Pact in 2020.
The Draft Budgetary Plans of Estonia and Latvia are found to be broadly compliant with the Stability and Growth Pact in 2020. The implementation of the Draft Budgetary Plans might result in some deviation from the country's medium-term budgetary objective for Latvia and from the adjustment path towards this objective in the case of Estonia.
For Belgium, Spain, France, Italy, Portugal, Slovenia, Slovakia and Finland the Draft Budgetary Plans pose a risk of non-compliance with the Stability and Growth Pact in 2020. The implementation of the Plans of these Member States might result in a significant deviation from the adjustment paths towards the respective medium-term budgetary objective. In the cases of Belgium, Spain, France and Italy, non-compliance with the debt reduction benchmark is also projected.
Overall, between 2019 and 2020, the number of Member States at or above their medium-term budgetary objectives is estimated to increase from six to nine. The Commission projects the euro area aggregate structural deficit to increase by 0.2% of potential GDP in 2020 (to -1.1%), thus showing a broadly neutral fiscal stance. That increase in the structural balance is driven in particular by projected expansionary fiscal policies in Member States with fiscal space, particularly the Netherlands and to a lesser extent Germany (0.6% and 0.4% of potential GDP, respectively) and the projected increase in the structural deficit of Italy (0.3% of potential GDP). Overall, fiscal policies continue to be insufficiently differentiated across the euro area. Member States with fiscal space are implementing expansionary fiscal policies and should stand ready to continue using their fiscal space. By contrast, the lack of consolidation in countries with sustainability problems remains a concern.
Steps under the Stability and Growth Pact
The Commission has also taken a number of steps under the Stability and Growth Pact for Hungary and Romania.
It has made two recommendations under the Significant Deviation Procedure, a tool which intends to send a warning in case of a significant deviation from the requirements of the preventive arm of the Pact. The Procedure also aims to help Member States return to – or close to – the fiscal position they would be in if the deviation had not occurred.
For Hungary, the Commission has established that no effective action was taken in response to the Council recommendation of June 2019. It proposes that the Council adopt a decision on non-effective action and a revised recommendation to Hungary to take measures in 2020 to correct its significant deviation from the adjustment path towards the medium-term budgetary objective. For Romania, the Commission has established that no effective action was taken in response to the Council recommendation of June 2019. It proposes that the Council adopt a decision on non-effective action and a revised recommendation to Romania to take measures in 2020 in order to correct its significant deviation from the adjustment path towards the medium-term budgetary objective.
Enhanced Surveillance Report for Greece
The Commission has also adopted the fourth report for Greece under the Enhanced Surveillance framework that was activated following the conclusion of the European Stability Mechanism stability support programme in August 2018. The publication of the report follows the fourth post-programme mission to Greece which took place from 23 to 26 September 2019.
The report concludes that Greece has prepared a budget for 2020 that meets the agreed primary surplus target of 3.5% of GDP in a growth-friendly manner, and that the government has overall taken the necessary actions to achieve its specific reform commitments for mid-2019, in the context of advancing a broader reform agenda. Further actions will be crucial to complete, and where necessary accelerate, reforms.
The findings of this report will be discussed at the Eurogroup of 4 December 2019.
What are the next steps?
The Commission invites the Eurogroup and the Council to discuss today's package and endorse the guidance offered today. The Commission will come forward with the next steps under the European Semester in due time, including the Annual Growth Survey 2020, the recommendation for the economic policy of the euro area, the Alert Mechanism Report, and the Draft Joint Employment Report.
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