21st Oct 2016

Barroso: EU budget rules are 'adaptable'

  • (Photo: Images_of_Money)

The European Commission has indicated it is prepared to give struggling countries some leeway to bring their debt back in line with EU rules but continues to insist that member state cannot spend their way out their problems.

The issue is central to the EU's dance with the markets as the commission tries to find a balance between being credible with nervous investors by enforcing the rules underpinning the euro, while not pushing countries into a downward spiral of debt-reduction measures.

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Spain, the eurozone fourth largest economy, is the first country to really test the beefed-up rules. It is supposed to reduce its budget deficit from 8.5 percent of GDP to 5.3 percent next year. EU rules say the budget deficit must be no bigger than 3 percent of GDP.

But next year's target, agreed with the commission, is in doubt with the already strong budget cuts seen as insufficient given the country's low growth prospects. Meanwhile, the social effects are becoming clearer. Unemployment among Spain's youth is hovering around 50 percent.

Speaking less than a month before the commission is due to give its verdict on Spain and other member states' budget policies, president Jose Manuel Barroso suggested his institution will be less than dogmatic in applying the rules.

"The rulebook allows for adaptability while remaining firmly focussed on sustainability," he said.

Flanked by economic affairs commissioner Olli Rehn for a "growth" pep-talk to mark Europe Day on 9 May, Barroso noted that the stability pact, governing the euro, is designed in an "intelligent way."

For his part, Rehn said the pact implies "differentiation among the member states according to their fiscal space and macroeconomic conditions."

But both were insistent that spending and greater debt is not the way out of the crisis. Barroso said it would be "completely irresponsible" to advise Greece, Ireland and Portugal - all recipients of an EU-International-Monetary-Fund bail-out - to "try to restore growth by increasing their deficit."

The commission president also blamed member states for the lack of growth-oriented initiatives, pointing to the "bickering" which hinders the single EU patent coming into place as an example.

He also said he wants countries to agree to projects bonds - a private sector-focussed way of financing infrastructure - during June's traditional summit, as well as increasing the lending capacity of the European Investment Bank.

While not accepting any political responsibility for the recent electoral outcomes in Greece (where fringe anti-austerity parties scored well) and France (where a socialist was elected), Barroso said that there was a "new consensus" that consolidation policies must be combined with growth.

EU leaders are once more to discuss growth at an informal meeting on 23 May. The occasion will be the first time that France's new president Francois Hollande, who has said austerity is not "inevitable," will also be around the table.


Europe ready to tackle Greek debt relief

The Greek government has built and broadened alliances in EU institutions and member-states that acknowledge the need to restructure the debt and deliver another economic model for the eurozone.

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