The European Commission estimates that 17 countries will exceed the EU-set government spending limit this year due to the effects of the war
The European Commission will propose to extend the suspension of the tax rules in place for the entire community area until the start of the coronavirus crisis for another year. In an economy stifled by the war in Ukraine, high inflation and under the threat of gas austerity from Moscow, Brussels is committed to maintaining flexibility in member states’ public spending. In this way, European countries’ government deficits can exceed 3% of GDP by 2023 – that was the historic rule – and they are not allowed to reduce their government debt to 60% – another of the limits imposed by the EU on partners.
This extension of the break-out clause – as these restrictions are called – is a crucial measure for Spain, which will hold general elections in 2023. According to Brussels estimates, Spain’s public debt will reach 115.1% of GDP this year and 113.7% in 2023, the country with the third-highest deficit, only after Greece and Portugal. Despite the EU foreseeing a reduction in member state debt over the next two years, 17 countries will exceed the 3% mark this year and reduce it to 11 next year.
Faced with this situation, the Community Executive has proposed to maintain the escape clause in the package of measures for next semester for another year, the economic newspaper ‘Financial Times’ announced on Thursday. The extension of this mechanism, which has been suspended since the start of the pandemic, was a demand already made by several states and to be ratified by EU economy and finance ministers next Monday, at the ECOFIN meeting, before it is approved. is formally adopted.
The measure does not arouse the enthusiasm of all members of the neighborhood club. While Greece, Italy, Portugal, Spain, France and Belgium will be the main beneficiaries of the renewal of the clause – as they are the most indebted states – organizations such as the European Central Bank (ECB) have warned of the need to interest rates in July in the face of runaway inflation. The US Federal Reserve (FED) and the Bank of England have in turn already taken action in this regard.
And now all indications are that Brussels will confirm that it will give European countries another year of margin to reduce their public debt, after lowering economic forecasts for the region. The latest estimates suggest that the economy in Europe will slow over the next two years as a result of the Russian invasion of Ukraine, growing only by 2.7% this year and 2.3% in 2023. The price of energy has been revised upwards and the Commission assumes that it will continue to rise, reducing activity and consumption.
The impact of the armed conflict will not be equally distributed among member states. The eastern countries will be the ones that suffer the most, with less economic activity and higher inflation, and much more dependent on energy when we talk about Russia. In the case of Spain, the European Commission is optimistic and expects a growth of 4% this year, thanks to the growth of tourism.
The extension of the escape clause also gives more scope to the debate on the reform of the Stability and Growth Pact, which has been under review since the start of the pandemic. At the beginning of April, Spain and the Netherlands tried to give new impetus to the amendment of the document with a joint proposal to facilitate the balance of public accounts. The idea is that fiscal rules adapt to the circumstances of each state, leaving room for economic growth, public investment and reform.
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
