Tuesday

5th Mar 2024

EU adopts softer touch on economic discipline

  • Thyssen: "At the end of the day it is also about people. And that is why I am here" (Photo: ec.europa.eu)

The European Commission tried to find a balance on Wednesday (13 May) between financial discipline and social welfare, as it presented its 2015 member state recommendations.

A week after its Spring forecasts showed economic recovery is still fragile, it published a set of guidelines which finance commissioner Pierre Moscovici said are "less intrusive" than previous documents.

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This is as much a choice of the "more political" commission of president Jean-Claude Juncker, who is issuing its first recommendations, as recognition of the fact that fewer measures need to be taken after half a decade of crisis and austerity.

"We don’t want to bang people on the head," an EU official told EUobserver, referring to the 26 EU states covered by the publication.

Cyprus and Greece, which remain under post-bailout surveillance, are not included.

The EU executive highlighted four priorities: "Boosting investment, delivering structural reforms, pursuing responsible fiscal policies, and improving employment policy and social protection".

Valdis Dombrovskis, the commission’s vice-president for the euro and social dialogue, as well as one of the fiscal hawks in the college, reminded EU capitals that reforms must be pursued.

Fifty five percent of the countries "made at least ‘some’ progress on implementation" of the previous recommendations, he said at a press conference.

"This does not mean no progress, but it does mean member states should step up their reform effort."

Half of the 26 are asked to reform their pension system, 17 are meant to take additional measures to ease the tax burden on labour or to fight tax evasion, and 19 received fiscal recommendations.

Sixteen countries are still under a procedure for macro-economic imbalances and nine countries remain under a procedure for excessive deficit.

No new procedure was opened or stepped up, however. The excessive deficit procedures for Poland and Malta were closed.
Britain won a new two-year delay to reduce its deficit, from 2014-2015 to 2016-17.

Despite a 5.2 percent budget deficit in the financial year 2014-15, no step-up in the procedure was deemed necessary by the commission. 


Moscovici said the decision on Britain is "due to different factors and the good economic results". But his remarks indicate he chose not to pick a fight with London at a time when concerns over a British EU exit are running high.

Finland

The bad news came for Finland, which could face an excessive deficit procedure if it doesn’t balance its budget quickly.

Finland’s deficit is expected to reach 3.3 percent this year and 3.2 percent in 2016, while its debt ratio will reach 64.8 percent in 2016.

"The excess can no longer be explained by exceptional factors, as in 2011," when Finland contributed to the EU fund to bailout Greece, Moscovici said.

Finland has two weeks to send the commission its assessment on the report.

The timing coincides with formation of a new coalition government by two centrist parties and by the eurosceptic True Finns, following elections on 19 April.

"The upcoming coalition agrees on what it needs to do. The coalition agreement will include reforms," an EU official told this website, citing the need for Finland to change its pension, administrative, and healthcare systems.

Big eurozone economies Spain and Italy were asked to maintain their pace of reforms and deficit reduction despite elections later this year in Spain and a recent ruling by Italy’s supreme court invalidating a freeze on some pensions.

"The Italian government has engaged in an intensive reform agenda. It is important that Italy implements its ambitions," especially regarding public administration reform and labour taxation, Dombrovskis said

No special recommendation was issued for France, as the commission will decide on 10 June if the French government has taken "effective action" to reduce its deficit.

The softer political message was also conveyed by the presence of the employment and social affairs commissioner, Marianne Thyssen, on the podium with Dombrovskis and Moscovici.

Social nuance

She added a social nuance to her colleagues’ talk of reform and discipline.

"The European semester exercise is of course about economic governance in the first place but we know that at the end of the day it is also about people. And that is why I am here," she said, noting that 23 million Europeans are unemployed, including 4.8 million young people.

"This year's recommendations focus on reducing poverty and social exclusion by filling gaps in member states' social safety nets and on activation measures," she said.

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