Over the past three years, the countries of the European Union, through a series of fiscal measures, have provided significant support to households and businesses that initially faced the consequences pandemic and then her energy crisis.

The expanded support was made possible by the activation in early 2020 of the general tax exemption clause of the Stability and Growth Pact.

However, as the European Commission announced on Wednesday, from 2024 the escape clause will be disabledto start a period of debt de-escalation, which has exceeded the 60% threshold of GDP in most EU countries. This means that there will now be less room for increased public spending.

The Commission gave general fiscal policy guidance for 2024, while in May he will make recommendations for each country separatelydepending on its debt characteristics, which will determine the amount of fiscal adjustment that needs to be made in the 2024 budget.

Commission recommendations

For Greece, which has the highest debt in the EU at over 170% of GDP, fiscal adjustment has already begun with this year’s budget. primary surplus 0.7% of GDP. The target for 2024 is expected to be to widen the surplus to continue deleveraging.

In its recommendations, the Commission will strike a balance between the existing fiscal rules and the proposals it made last November to revise them to take into account new economic realities after pandemic And energy crisis.

And that’s because the debate about revising the Stability and Growth Pact is still ongoing, and several countries have objections to elements of the Commission’s proposals.

The issue will be discussed next Monday at the Eurogroup and the following day at Ecofin, with European Commission Vice President Valdis Dombrovskis expecting some convergence on key elements of the revision of the Pact ahead of the March 23-24 summit.

Until agreement is reached on new rules, the Commission believes that existing rules apply, which stipulate that the deficit should not exceed 3% of GDP and that there should be a debt adjustment up to a limit of 60% of GDP. At the same time, however, it will implement some elements of its proposals to make a connection between how the rules have been applied in the past and how they might work in the future.

The main purpose of the Commission’s proposals is increasing debt sustainability while steadily increasing potential growth rates. For this reason, special attention is being paid to the smooth implementation of the necessary investments, especially for the transition to green and digital technologies, as well as growth-enhancing reforms.

EU Economic Affairs Commissioner Paolo Gentiloni has signaled that fiscal adjustment should not come at the expense of public investment, but should be based on containment of upfront regular budget expenditures, which would result from the restriction of support measures. certainly a contribution to the energy crisis.

“Because energy prices are set lower, they must phasing out most support measuresstarting with the less targeted,” Dombrovskis said. According to the statement of the commission, support can be provided only in the event of a repeated increase in prices and only through targeted measures.

The Commission invited all countries to submit four-year mandatory programs with fiscal targets, investments and reforms that they will implement.

Source: RES