European fiscal framework may also be relaxed next year | Economy

The European Stability and Growth Pact obliges member states to keep the budget deficit below 3 percent of gross domestic product and the government debt below 60 percent. Those rules have been suspended since the outbreak of the corona crisis in March 2020. The activation of that so-called escape clause allowed member states to incur huge expenditures to prop up the economy.

While the debate on the reform of the pact is in full swing, based on the favorable forecasts for the economic recovery, the Commission had proposed to re-apply the rules from 2023. However, the Russian invasion creates “great uncertainty,” Dombrovskis said. Therefore, the Commission will re-evaluate the situation when publishing the Spring Economic Forecast. “On that basis, we will make a decision on the general escape clause.”

According to Dombrovskis, it is currently impossible to accurately estimate the economic impact of the war, but there is no doubt that it will come at a cost. There is a threat of an impact on the already high inflation and energy prices, there are budgetary costs, repercussions on the financial markets… “At the moment we do not expect the recovery to derail completely, but to weaken,” said European Commissioner for Economy Paolo Gentiloni, but he too could not rule out the possibility of other risks emerging, such as gas shutdowns or supply chain disruptions.

Dombrovskis and Gentiloni today presented the Commission’s first guidelines to Member States for their fiscal policies for 2023. Pending further decisions on the entire fiscal framework, they already made it clear that they will not adopt the rules on debt reduction for countries with high public debt next year. will apply.

Under those rules, Member States with a government debt higher than 60 percent of gross domestic product must make an annual effort to bring their debt balance closer to that threshold. In concrete terms, the difference must be reduced by an average of five percent every year over a period of three years.

“The Commission believes that compliance with the debt reduction benchmark is not justified in these exceptional circumstances. We will not apply the 1/20 rule for countries with debt balances above 60 percent,” Dombrovskis said. That should give these countries “room for maneuver”, but Dombrovskis stressed that they must nevertheless present a “credible debt reduction strategy”.

The corona pandemic has caused the debt ratio in the eurozone to rise sharply in recent years, to an average of around 100 percent. Belgium also belongs to the large group of countries with an excessive government debt. In its latest forecasts last autumn, the Commission predicted that Belgium’s debt will amount to around 113% this year.