Wednesday

7th Jun 2023

Government optimism leads to missed budget targets

  • Over-egging the pudding? The European Commission says government over-optimism leads to missed budget targets. (Photo: Valentina Pop)

EU governments are too optimistic about their economic prospects and their ability to control public spending, leading to them continually missing their budget targets, a European Commission paper has argued.

In its annual “Report on Public Finances” published on Wednesday (17 December), the EU executive says that governments tend to aim to high when it comes to forecasting their budgets and economic growth rates.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

On average, their growth projections are 0.6 percent higher than the final figure, while governments who promise to cut their deficit by 0.2 percent of GDP, typically tend to increase their gap between revenue and spending by the same amount, according to the Commission report.

The Commission argues that the gap is caused by governments being better at meeting revenue targets than reining in over-spending. It adds that large EU countries, and those with large deficits, tend to be the worst offenders in submitting budget plans that they fail to carry out.

France and Italy, the second and third largest economies in the eurozone, are considered to be the worst offenders in failing to keep to their deficit and debt targets.

Under the EU’s revamped economic governance regime, governments are required to submit their tax and spending plans over a three year period to Brussels for Commission approval.

Meanwhile, the report concedes that the EU’s expected economic recovery has not “lived up to the expectations that existed earlier in the year”, adding that “the risk of persistent low growth, close to zero inflation and high unemployment has become a primary concern”.

Economic growth across the EU has been steadily revised down over the course of 2014 and is now expected to be 1.3 percent of GDP.

The prognosis is scarcely better for 2015, during which the EU economy is forecast to grow by 1.5 percent and by 1.1 percent across the eurozone.

A lack of business confidence, resulting in low levels of investment and consumer demand, together with the fallout from the EU’s ongoing trade sanctions battle with Russia, have been the main causes of the EU’s economic stagnation.

However, despite a very fragile recovery in 2014, the Commission report states that government austerity efforts are “bearing fruit” and have resulted in most EU governments reducing their budget deficits.

The average deficit across the 28-member bloc is expected to be within the 3 percent limit in its stability and growth pact in 2014 for the first time since 2008, the first year of the financial crisis.

However, national debt burdens continue to rise. The average debt pile across the eurozone, of which Lithuania will become the 19th member in January, is projected to reach 95 percent in 2015.

Lithuanians back euro amid Russia tensions

Lithuania on Thursday is adopting the euro with a majority now supporting the currency change amid heightened tensions with their former Russian masters.

Interview

Part of EU middle class 'being squeezed out', MEP warns

EUobserver interviewed Spanish MEP Jordi Cañas to discuss the situation of Europe's middle class, the dangerous political reaction if certain groups feel neglected, and the role that member states and the EU can play at the policy level.

Interview

Part of EU middle class 'being squeezed out', MEP warns

EUobserver interviewed Spanish MEP Jordi Cañas to discuss the situation of Europe's middle class, the dangerous political reaction if certain groups feel neglected, and the role that member states and the EU can play at the policy level.

Latest News

  1. Israeli settlers encircling Jerusalem, EU envoys warn
  2. No clear 'Qatargate effect' — but only half voters aware of EU election
  3. Part of EU middle class 'being squeezed out', MEP warns
  4. Migration commissioner: Greek pushback film 'clear deportation'
  5. In 2024, Europe's voters need to pick a better crop of MEPs
  6. ECB president grilled over €135bn interest payout to commercial banks
  7. EU political ads rules could be 'hotbed for retaliatory flagging'
  8. Final steps for EU's due diligence on supply chains law

Stakeholders' Highlights

  1. International Sustainable Finance CentreJoin CEE Sustainable Finance Summit, 15 – 19 May 2023, high-level event for finance & business
  2. ICLEISeven actionable measures to make food procurement in Europe more sustainable
  3. World BankWorld Bank Report Highlights Role of Human Development for a Successful Green Transition in Europe
  4. Nordic Council of MinistersNordic summit to step up the fight against food loss and waste
  5. Nordic Council of MinistersThink-tank: Strengthen co-operation around tech giants’ influence in the Nordics
  6. EFBWWEFBWW calls for the EC to stop exploitation in subcontracting chains

Join EUobserver

Support quality EU news

Join us