|
|
This part provides an overview of the public finance developments in 2019, i.e. before the COVID-19
outbreak.
Following the abrogation of Spain’s excessive deficit procedure in June 2019, for the first time since
2002, no Member State was subject to an excessive deficit procedure at the end of 2019.
Hungary and Romania were still subject to significant deviation procedures in 2019.
None of the 2020 draft budgetary plans submitted by euro area Member States were found to be in
particularly serious non-compliance with the Stability and Growth Pact’s requirements. However, the
draft budgetary plans of eight Member States could result in a significant deviation from their
adjustment paths towards their respective medium-term budgetary objectives and, in four of these
cases, in an insufficient reduction in their high levels of public debt.
In February 2019, the Economic and Financial Committee agreed on a new methodology to compute
the minimum benchmark, one of the key components of the minimum medium-term budgetary
objective (MTO). The new methodology is more stable, exhibits better properties.
The minimum MTOs were revised accordingly for the period 2020-2022. The majority of Member
States have set a more demanding MTO than required by their minimum MTO. However, the
activation of the General Escape Clause in March 2020, has allowed for a temporary departure from
the adjustment path towards the medium-term budgetary objective, provided that this does not
endanger fiscal sustainability in the medium term.
Spending reviews are increasingly being used in the euro area, mostly to improve the quality of public
services and foster sustainable growth.
A Commission survey on spending rules shows improvements in political commitment and process
coordination, but weaknesses in terms of monitoring and consistency with the budgetary process.
A spending review for investment could be an important tool to screen priorities within investment
spending.
Automatic stabilisers can smooth a sizeable part of cyclical fluctuations.
Automatic stabilisers can significantly offset cyclical fluctuations: In the EU, they offset an average of
around 30–50% of any loss in household disposable income and up to 30% of any loss in GDP.
However, there are considerable differences across Member States. Overall, evidence shows that
automatic stabilisers are larger in the EU than in the US.
On the one hand, the mitigation and adaptation investments and the social policies needed to help the
citizens and regions most affected by the transition imply higher public expenditure. On the other
hand, carbon pricing instruments to address distorted price signals may raise revenues and cut
expenditure by phasing out fossil fuel subsidies.
Green budgeting can contribute to a mainstreaming of green budgetary policies and processes by
linking budgetary tools and environmental and climate change goals.
The Commission is exploring ways to integrate the risks associated with climate change and the
transition to a carbon-neutral economy into its debt sustainability analysis framework