EU advocates fiscal prudence and abandonment of “whatever it takes”

European Commissioner for the Economy Paolo Gentiloni speaks during a press conference on February 13, 2023 in Brussels (AFP/Archives/John THYS)

Brussels sounded the return to budgetary prudence on Wednesday, recommending that EU countries reduce aid intended to reduce the energy bills of households and businesses, after three years of largesse.

These support measures will now have to be reserved for the most modest households so that States spend less, but also to restore an incentive to save energy, explained the European Commission.

With the Covid pandemic at the beginning of 2020, the EU had loosened the purse strings in order to avoid an economic collapse. A policy pursued last year in the context of the Russian invasion of Ukraine and soaring fuel, gas and electricity bills.

The result has been a surge in budget deficits and public debt, with the European bloc temporarily freeing itself from its budgetary corset, the Stability Pact which limits deficits to 3% of GDP and debt to 60%.

But the grace period is over, with the reactivation of the rules scheduled for the end of 2023.

“It is a question of moving towards more prudent budgetary policies”, declared the Vice-President of the Commission, Valdis Dombrovskis, presenting the guidelines for 2024, during a press conference.

“As energy price pressure wanes, member countries should phase out their support measures,” starting with those not targeted at the lowest-income households, the EU economy commissioner has recommended. , Paolo Gentileni.

Brussels on Wednesday asked EU member countries to prepare their budgets for next year by aiming for a return to below 3% in “medium-term” deficits while investing in green and digital growth, two strategic priorities.

The adjustment will have to be carried out “by limiting the growth of current expenditure, but not by cutting in investments”, warned the Italian official. “It is of course a question of preserving growth, a balance is necessary”.

– “It’s not austerity” –

Mr Gentiloni recalled that the Member States must make good use of the 800 billion euros of the European recovery plan NextGenerationEU. “We have hundreds of billions to invest in the EU, this is not austerity,” he insisted.

As announced at the end of last year, the European Commission already includes in its recommendations certain principles of the reform of European budgetary rules, presented in November and currently under discussion with the Twenty-Seven.

Given the consequences of the pandemic, the Commission considers that it is “not appropriate” to simply return to the implementation of the “old rules” of the Stability Pact which will be reactivated on December 31.

However, on this date, the new rules which must be specified in a proposal at the end of March, cannot yet enter into force, because the legislative process will not be completed.

“To make the connection”, the Commission has therefore decided to apply from next year in its budgetary surveillance “certain elements of the guidelines for the reform”.

Next May, it will formulate specific recommendations for each country that will take this modernization into account.

Thus, the 27 will have to propose a budget trajectory over several years “making it possible to place the public debt ratio on a reduction trajectory or to maintain it at a prudent level, and to bring the budget deficit below the benchmark of 3% of GDP to middle term”.

The recommendations from Brussels will take into account, as provided for in the reform project, the individual budgetary situation of each Member State. They will include “quantified and differentiated objectives” for each, and these objectives will be formulated according to a single indicator: the evolution of the level of public expenditure, and no longer the level of deficit.

The idea is to give more flexibility to EU countries to implement reforms and investments contributing to the green and digital transitions.

The Commission does not plan to reinstate the excessive deficit procedures in the spring aimed at States in breach of these rules. On the other hand, it plans to reactivate them in the spring of 2024 on the basis of the budgetary data for the year 2023.

The recommendations of Brussels must therefore be taken into account by the 27 in the execution of their budget as of this year.

© 2023 AFP

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