15 November 2013

European Commission: Europe's budgetary surveillance moves into full gear

For the first time, the Commission has issued opinions on euro area Member States' Draft Budgetary Plans, which from this year had to be submitted to the Commission by 15 October, at the same time as draft budgets were sent to national parliaments. Assessments have also been published regarding compliance with Council recommendations under the Excessive Deficit Procedure (EDP), potential breaches of the debt and deficit criteria under the Stability and Growth Pact (SGP), and on certain Member States' plans for structural reforms with a budgetary impact outlined in their Economic Partnership Programmes (EPP).

Olli Rehn, European Commission Vice President in charge of Economic and Monetary Affairs and the Euro, said: “We have reached a turning point on the road to economic recovery and today we reach a milestone in the implementation of Europe's strengthened economic governance. Today's Commission opinions on national budgetary plans support the euro area Member States in their pursuit of stronger growth and fiscal sustainability. Because in an economic and monetary union, national budgetary decisions can have an impact well beyond national borders. Member States have given the Commission the responsibility to issue these opinions and I trust that they will thus be taken on board by national decision-makers.”

The package contains four elements:

1. Opinions on Draft Budgetary Plans

At the heart of the package are the first ever opinions on the Draft Budgetary Plans for 2014 submitted by the 13 euro area countries not under an economic adjustment programme (all except Cyprus, Greece, Ireland, and Portugal). The opinions give an early signal on whether the underlying national budgets are in line with the obligations under the SGP before they are adopted.

2. Effective action assessments

The Commission has assessed the action taken by seven Member States in response to the new Council recommendations adopted last June setting new deadlines for the correction of excessive deficits. The countries concerned are Belgium, Spain, France, Malta, the Netherlands, Poland and Slovenia.

3. Assessments of Economic Partnership Programmes

Having received a new EDP recommendation this year, Spain, France, Malta, the Netherlands and Slovenia laid out their plans for structural reforms with a budgetary impact in Economic Partnership Programmes, which the Commission has also analysed.

4. Reports to analyse reasons for non-compliance with debt or deficit criteria

Finally, for Croatia, Lithuania and Finland, the Commission has sent reports to the Council assessing the reasons for an actual or forecast breach of either of the key thresholds set out in the SGP.

Conclusions for the euro area

A key benefit of the assessment of the Draft Budgetary Plans is that it has facilitated an assessment also of the budgetary situation of the euro area as a whole, as set out in today's Communication. Some of the key conclusions are:

• The large consolidation efforts implemented in recent years are bearing fruit: public debt is set to stabilise and the average headline budget balance is expected to be brought below the reference value of 3 per cent of GDP. Those countries that face the largest fiscal challenges plan to implement the strongest consolidation efforts, with some differentiation according to fiscal space. However, only two Member States (Estonia and Germany) have attained their medium-term objective, implying that further consolidation in other euro area countries is necessary. The aggregate fiscal effort, as expressed by the change in the cyclically adjusted budget balance net of one-off and temporary measures, should amount to ¼ per cent of GDP next year.

• Further structural reform is necessary to bolster the foundations for sustained growth and sound public finances. Overall, the Economic Partnership Programmes show progress with respect to the improvement of national fiscal frameworks; mixed results with respect to tax reform; and substantial reforms to pension and health systems, albeit not for all countries.

• The Draft Budgetary Plans still do not pay sufficient attention to the composition of fiscal consolidation. In particular, the general trend of decreasing public capital expenditure observed in the past few years, while stabilising, is not being reversed. Some focus on expenditure restraint is key in a well-designed consolidation strategy, especially where government sectors are relatively large.

Country-specific conclusions

It is reassuring that no Draft Budgetary Plan has been found to be in serious non-compliance with the obligations of the SGP and that it is not necessary to request revised budgetary plans. However, in several cases, the Commission has found reasons for substantial criticism and has called on the Member States concerned to take its opinions into account in the finalisation of the 2014 budgets. [See full press release for an overview of the Commission's key conclusions per country.]

Next steps

The opinions on the Draft Budgetary Plans will be presented to the Eurogroup, which meets on 22 November to discuss them. The Commission will also present its opinion to the parliament of the Member State concerned and/or to the European Parliament if invited to do so.

In line with the new common budgetary timeline introduced by the Two-Pack, budgets have to be adopted by national parliaments by 31 December each year. The Commission continues with its surveillance of budgetary developments in all Member States throughout the year.

The proposal for EDP Recommendations will be presented to the ECOFIN Council for discussion on 10 December. The same ECOFIN Council will also discuss the Commission proposals for Council opinions on the Economic Partnership Programmes.

Full press release

Remarks by Vice-President at the Press Conference on the Autumn Fiscal Package 2013

Today's package marks a milestone in Europe's reinforced economic governance. The last few years have seen big improvements in the EU's economic governance. We have introduced a coherent annual cycle of budgetary policy and structural policy in Europe, with more integrated steps for the euro area…

We have mapped our assessment of the 13 draft budgetary opinions to the euro area. While there is well-grounded reason for criticism – otherwise the map would be all green – our assessment gives us confidence that national budgetary authorities will take our opinions into account in concluding their budgetary procedures between now and the end of the year. As I mentioned earlier, in case our concerns were to be ignored and a non-compliant budgetary plan were to be enacted – which I do not expect to be the case of course – the reinforced fiscal rules with their effective enforcement mechanisms would be applied as necessary.

I have to add that the budgetary plans still do not pay sufficient attention to the composition of fiscal consolidation. Especially the general trend of decreasing public capital expenditure observed in the past few years, while stabilising, is not yet being reversed. Continued progress with sound public finances should be supported by growth-friendly structural measures, in line with the Annual Growth Survey that we presented on Wednesday last week. I am looking forward to a frank and open discussion on these issues at the special Eurogroup one week from today, Friday 22nd of November, where I will put the accent, not only on the compliance of the countries, but on the composition of fiscal consolidation from the point of view of economic growth and on economic reforms supporting sustainable growth and fiscal sustainability.

Full remarks

2014 Draft budgetary plans of the euro area: overall assessment of the budgetary situation and prospects

Annex

Draft budgetary plans for the individual countries

Fiscal Package Autumn 2013

Autumn fiscal surveillance package: FAQ

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