On Wednesday 18 May, European Commission commissioners finally agreed to submit a proposal to European countries on Monday 23 May to suspend public debt and deficit targets for 2023, for the fourth consecutive year. The measure, which will still have to be validated by the member states, gives countries such as Spain an additional grace period to get their public accounts back on track after the Covid bill.
The European Union’s so-called Stability and Growth Pact, which sets budgetary adjustment protocols for countries that exceed the excessive deficit threshold of 3% of their GDP or whose debt exceeds the established limit of 60%, was temporarily suspended in March 2020 through the activation of the so-called escape clause. The aim was to give European countries a free hand to deal with the health, social and economic emergency unleashed by the Covid pandemic by unceremoniously multiplying their public spending. The measure was successively extended for 2021, a year still marked by the pandemic, and 2022, in order to give countries room to get back on their feet and consolidate the economic recovery before pushing through adjustments that would jeopardise the recovery. Until just a few months ago, the expectation was to reactivate the fiscal rules in 2023, after modifying them, but the war waged by Russia in Ukraine has finally convinced the European Commission of the need to give additional leeway.
The decision was taken in the light of the latest economic forecasts from Brussels, which last Monday downgraded the growth forecast for the euro area and the EU in February from 4% to 2.7% in 2022. Spanish GDP growth in the first quarter has been lowered from 2.2% to 0.3%, France and the Netherlands have been frozen and Italy has been pushed down by 0.2%, which would fall back into technical recession if it does not emerge from negative figures in the second quarter.
The European proposal will be formally presented next Monday by the European Commission’s economic vice-president, Valdis Dombrovskis, and Commissioner Gentiloni. They will hold a press conference to announce the annual package of economic recommendations to each member state.
