The European Commission presented this Wednesday a communication with a plan for the revision of the rules of economic governance in the European Union. Brussels defends new rules for the stability and growth pact. Among the measures that could be developed, already in 2024, is the possibility that an individual Member State can skate the deficit, without being penalized, provided that “absolutely exceptional” circumstances justify it. The other measure could be to give more time for the reduction of public debt ratios.
“What matters, for the sustainability of the debt and for the markets, is that the Member States reduce the public debt ratios, -especially when it is high- in a realistic, gradual and sustained way”, defended the commissioner together with the minister of Economy, Paolo Gentiloni, stressing that Brussels “must move away from the unrealistic requirements imposed by the 1/20 annual debt reduction rule”.
The future rules should also allow activating an exception clause that individually suspends the budgetary discipline, in “very exceptional” circumstances.
“Of course, under the revised framework, robust escape clauses would still be needed to address truly exceptional situations where rules-based policy cannot realistically be met,” the commissioner stressed.
“In addition to the general escape clause for use in cases of severe economic downturn, which we already know very well, a country-specific escape clause would allow for temporary deviations from the medium-term budgetary path, in case of truly exceptional circumstances, outside the control of the government in question,” Gentiloni defended.
The Brussels plan also includes giving governments the power to decide on economic and financial adjustment measures when macroeconomic imbalances are detected.
In that case, “we would strengthen the preventive role of the Macroeconomic Imbalances Procedure by focusing more on new risks, allowing for early detection of emerging imbalances”, the commissioner stressed, adding that “when assessing the seriousness of imbalances, Greater emphasis would be placed on the evolution of the identified risks and the political response of the affected Member States”.
In the document, now presented, the European Commission warns of the urgency of “an agreement between the Member States” and at an institutional level, so that the new rules can be applied in 2024.
Brussels also indicates a set of reforms “adapted to the challenges of this decade”, seeking to “create a more transparent, simpler and more integrated architecture for the supervision” of national budgets. Brussels says the goal is to “ensure debt sustainability and promote sustainable growth.”
At the center of these guidelines are the “medium-term national structural budget projects” that include the structural reforms of each country, “in a common framework of the European Union”. Brussels advocates “greater national ownership and better execution of budget-structural plans”, with a view to “correcting macroeconomic imbalances”.
Under the Brussels plan, budget bills “would integrate fiscal, reform and investment objectives, including those to address macroeconomic imbalances where necessary.” This approach would be done through a “comprehensive medium-term plan, creating a comprehensive and simplified process.”
“The Member States would have a greater margin of maneuver to define the budgetary adjustment route, strengthening the national appropriation of their budgetary routes.
A single operational indicator, net primary spending, that is, spending that is under the control of a government, would serve as the basis for defining the fiscal adjustment route and conducting annual fiscal surveillance, significantly simplifying the framework.
In the case of countries that had a bailout program, as was the case of Portugal, Brussels advocates the creation of “a more focused and simplified post-program supervision framework, which assesses the repayment capacity of the Member States that They have benefited (…). ninai) of financial assistance”.
The Commission considers that “strong coordination of fiscal and structural policies and effective economic and fiscal surveillance are necessary”. The measures must provide “solid public finances that can respond in a coordinated way to the challenges”, as well as “the realization of the common priorities of the EU”, in the face of the “current crises”.
Source: TSF
