Wednesday

19th Dec 2018

Commission defends 'intelligent' fiscal policy

  • 'If we had pushed in a more aggressive manner, it would have been absolutely counter-productive,' EU finance commissioner Pierre Moscovici told journalists (Photo: Jorge Franganillo)

The European Commission rejected on Thursday (12 July) accusations from the guardians of EU finances that its monitoring of fiscal policies was too lax and failed to produce results.

"Our choices were economically justified, politically intelligent and socially fair," EU finance commissioner Pierre Moscovici told journalists.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

"If we had pushed in a more aggressive manner, it would have been absolutely counter-productive. It would have further weakened growth without improving the debt to GDP ratio," he argued.

In a long and detailed report, the auditors scrutinised the commission's monitoring of member states fiscal and economic policies - the so-called European semester - and in particular one of the mechanism's tools: the preventive arm.

The preventive arm was introduced on 1997 as part of the Stability and Growth Pact (SGP), to try to keep public deficit and debt in the limits set by the pact - 3 percent of GDP for the deficit, 60 percent for the debt.

The auditors concluded that the commission "has extensively used discretionary powers to reduce the adjustment requirements. It thus did not give the necessary importance to reaching the main objective of the preventive arm regulation."

Preventive Arm vs Corrective Arm

They argued in particular that flexibility rules introduced by the commission in 2015 and 2017 were "appropriate in principle" but that "specific provisions were not time–bound and effectively went too far in practice particularly when implemented during more normal times."

They also found shortfalls in the corrective arm, the mechanism that is triggered when member states do not respect the fiscal requirements.

"The credibility of the preventive arm has been further eroded by the developments in the corrective arm," the auditors said in their report.

They pointed out that for the commission, "requirements of the corrective arm can be fully met just by cyclical recovery," and that in consequence, member states "do not have to fulfil the requirements for improving their structural balances."

They called on the EU executive to "explore ways within the legal framework to ensure that the level of structural adjustment required under the preventive arm is also delivered by member states under the corrective arm."

The auditors also noted that the commission did "not distinguish enough between those member states that do have a high level of debt and others."

They inisted that "the weakened SGP framework" did not ensure that the most indebted countries reach their targets. They argued that this "might trigger market concerns about their fiscal sustainability in the next recession."

The report's conclusions are a direct blow at the current commission, which has advocated flexibility as an "intelligent" way of implementing EU rules.

"It was not breathtaking Keynesianism," Moscovici said Thursday, adding that the commission was "extremely cautious."

"We were in a crisis that was followed by an extremely soft recovery only two years ago," he argued.

Suggesting that the auditors' view of the situation was too narrow, he insisted that the commission's action was "justified economically, if not from an accounting point of view."

The report, written by a team of experts led by a former International Monetary Fund official, joins earlier criticism that the commission is bending the rules for political reasons.

Former German finance minister Wolfgang Schaeuble suggested in particular that the commission was not "neutral" and that other bodies like the European Stability Mechanism should be entrusted with the implementation of EU fiscal rules.

"The commission doesn't have the will to go into direct conflict with the individual member states and therefore doesn't prioritise the implementation of joint agreements," a German government report also said last year.

But in its written reply to the auditors, the EU executive noted that all its decisions were approved by member states, and it rejected the idea of a "more mechanical application of the rules, which does not take account of the prevailing risks to economic recovery."

Commission warns Italy over high debt level

The Italian government must demonstrate it is making an effort, or the EU will consider launching a procedure. France and Romania are also under scrutiny.

Juncker seeks budget whip on unruly states

EU officials want discretionary powers to suspend funds from states that violate treaty values, in a bold power grab amid likely clashes with Hungary and Poland.

EU gives Switzerland another six months for a deal

The EU commission is giving more time to the Swiss government to endorse a deal that would put various sectorial agreements to access the single market under one deal. Nevertheless, after Brexit, the EU has had enough of exceptions.

Greens boycott EU-Morocco vote after lobbying expose

EUobserver has exposed Moroccan lobbying at the European Parliament, prompting a probe to be launched against several MEPs. The Greens have now decided to boycott next week's Morocco trade vote in protest, saying the lobbying investigation must be finished first.

News in Brief

  1. 3,500 UK troops on standby for no-deal Brexit
  2. Brexit: Opposition disagrees over no confidence vote
  3. EU court confirms suspension of Polish judges law
  4. France to tax Google, Apple, Facebook, Amazon
  5. EU negotiators agree CO2 targets for cars
  6. May: Brexit vote will be week of 14 January
  7. Rome finds extra budget funds to fit EU demands
  8. Polish climate talks end in agreement on rulebook

Stakeholders' Highlights

  1. International Partnership For Human RightsKyrgyz authorities have to immediately release human rights defender Azimjon Askarov
  2. Nordic Council of MinistersSeminar on disability and user involvement
  3. Nordic Council of MinistersInternational appetite for Nordic food policies
  4. Nordic Council of MinistersNew Nordic Innovation House in Hong Kong
  5. Nordic Council of MinistersNordic Region has chance to become world leader when it comes to start-ups
  6. Nordic Council of MinistersTheresa May: “We will not be turning our backs on the Nordic region”
  7. International Partnership for Human RightsOpen letter to Emmanuel Macron ahead of Uzbek president's visit
  8. International Partnership for Human RightsRaising key human rights concerns during visit of Turkmenistan's foreign minister
  9. Nordic Council of MinistersState of the Nordic Region presented in Brussels
  10. Nordic Council of MinistersThe vital bioeconomy. New issue of “Sustainable Growth the Nordic Way” out now
  11. Nordic Council of MinistersThe Nordic gender effect goes international
  12. Nordic Council of MinistersPaula Lehtomaki from Finland elected as the Council's first female Secretary General

Latest News

  1. Muscat's one-man rule poses challenge for EU
  2. Orban protests target state media in new front
  3. Brexit and the Queen Sacrifice
  4. EU gives Switzerland another six months for a deal
  5. Fiscal discipline rules in eurozone are devastating
  6. EU capitals see weekend of tear gas and water cannon
  7. Bulgarian 'EU passports' whistleblower wants justice
  8. No more Brexit talks, despite May's pleas

Stakeholders' Highlights

  1. Nordic Council of MinistersNordic design sets the stage at COP24, running a competition for sustainable chairs
  2. Counter BalanceIn Kenya, a motorway funded by the European Investment Bank runs over roadside dwellers
  3. ACCACompany Law Package: Making the Best of Digital and Cross Border Mobility,
  4. International Partnership for Human RightsCivil Society Worried About Shortcomings in EU-Kyrgyzstan Human Rights Dialogue
  5. UNESDAThe European Soft Drinks Industry Supports over 1.7 Million Jobs
  6. Mission of China to the EUJointly Building Belt and Road Initiative Leads to a Better Future for All
  7. International Partnership for Human RightsCivil society asks PACE to appoint Rapporteur to probe issue of political prisoners in Azerbaijan
  8. ACCASocial Mobility – How Can We Increase Opportunities Through Training and Education?
  9. Nordic Council of MinistersEnergy Solutions for a Greener Tomorrow
  10. UNICEFWhat Kind of Europe Do Children Want? Unicef & Eurochild Launch Survey on the Europe Kids Want
  11. Nordic Council of MinistersNordic Countries Take a Stand for Climate-Smart Energy Solutions
  12. Mission of China to the EUChina: Work Together for a Better Globalisation

Join EUobserver

Support quality EU news

Join us