EU changes deficit deadlines approach

The European Commission (EC) published last week the guide recommendations for EU members for next year, which for the first time reflect the new strategy about which there had been a lot of speculation. This guide wants to make less emphasis on fiscal consolidation and put in place more measures to improve growth.

The CE understands that numerous structural reforms have been carried out and current deficits have been almost corrected, even though reforms are taking place in different times and their impact is not equal in all countries.

In the short term, the economic recovery has been slowed down by the accumulated imbalances and because the results of the reforms are slow. This has made a strong social impact after several years without growth. Although Europe needs fiscal consolidation, it also needs growth to generate employment (especially urgent for young people) and in this sense, structural reforms are an essential part to boost growth.

The CE suggests:
• To promote further measures to deal with high levels of debt and vulnerabilities that still exist in the financial systems, and propose alternative sources of financing to companies.

• To improve active labor market measures.

• Investments in education, training, R&D and resource efficiency to improve competitiveness.

• To create the right conditions for businesses.

• And, in the light of the progress made in the consolidation, despite the weak economic environment, to give extra time certain member states to achieve a 3% deficit. A time that should be used to reduce the structural deficit while intensifying the reforms for the recovery.

On this basis, the Commission has taken several decisions related to the open Procedures of Excessive Deficit (PDE).

• Recommend the Council to lengthen deadlines to correct the deficit to between one and two years, for countries that have an open PDE: France, Netherlands, Poland, Portugal and Spain.

• Recommend the Council to repeal the PDE in five countries: Italy, Latvia, Hungary, Lithuania and Romania.

Spain has to achieve the deficit target in 2016 (6.5% in 2013, 5.8% in 2014, 4.2% in 2015 and 2.8% in 2016), although the Council has set a limit on October 1, 2013 for the Government take effective measures and present a detailed strategy to achieve this target. Ultimately, Spain avoids for now strict monitoring and the threat of sanctions.

The Commission recommendations on structural reforms are pretty much the same it made in the past: a rigorous and transparent application of the law of Budget Stability; the creation of an independent budget office before end of the year; reducing hospital expenses; entry into force of the law that excludes big public spending from the Consumer Price Index in the beginning of 2014 and a solution to the electrical sector deficit by the end of 2013.

About the Author

Carlos Díaz Guell
Editor at and, Carlos began his career in financial journalism as founding member of El País. He's been communications director of Bank of Spain, member of the ECC at the European Central Bank, Institutional Relations director at Iberia and editor at La Economía 16 magazine.

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