Brussels keeps debt rules lifted, but recommends fiscal prudence

The European Commission Monday proposed to extend a moratorium on EU fiscal rules until the end of 2023, but kept the option to open sanction procedures against EU countries that stray from its fiscal recommendations.

This “does not mean a free for all,” warned Commission Executive Vice President Valdis Dombrovskis at a press conference. “Since growth remains positive and inflation high, a broad based impulse to the economy… does not appear to be warranted.”

“The Commission considers that the Union is not yet out of a period of severe economic downturn. On this basis, the conditions to maintain the general escape clause in 2023 and to deactivate it as of 2024 are met,” the EU executive wrote. It recommended a “prudent” fiscal stance for 2023, adding that high-debt EU countries should limit expenditures “below medium-term potential output growth.”

EU debt rules limit government deficit and government debt to 3 percent and 60 percent of GDP, respectively, and dictate debt reduction pathways in case these thresholds are breached. Currently, 17 EU countries are in breach of the deficit criterion and five aren’t fulfilling the debt criterion, the Commission found.

Belgium, Bulgaria, Czechia, Germany, Greece, Spain, France, Italy, Latvia, Hungary, Malta, Austria, Slovenia and Slovakia had excess deficits in 2021, the Commission found, while Lithuania, Estonia and Poland plan excess deficits in 2022. Belgium, France, Italy, Hungary and Finland are in breach of the debt threshold.

But the EU executive said that “compliance with the debt reduction benchmark would imply a too demanding frontloaded fiscal effort that risks to jeopardise growth,” and for that reason, “compliance with the debt reduction benchmark is not warranted under the current exceptional economic conditions.”

It also decided not to open so-called excessive deficit procedures to rein countries in, but reserves itself the right to do so in the fall as well as in spring 2023 with regards to countries’ compliance as it assesses so-called country specific recommendations regarding fiscal policy.

CORRECTION: This alert has been updated to clarify that the Commission recommends a “prudent” fiscal stance for 2023.

Brussels keeps debt rules lifted, but recommends fiscal prudence

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