The European Commission announced today that it has sent a strong signal to Member States to carry out structural reforms and to continue consolidating their public finances. This follows the approach that the new College of Commissioners outlined in November and is at the heart of the Annual Growth Survey 2015: a fresh focus on investment, structural reforms, and fiscal responsibility.
Of the 16 countries identified in November as experiencing macroeconomic imbalances, the Commission stepped up the procedure for three countries: France, Germany and Bulgaria. For two countries, the Commission opened the Macroeconomic Imbalance Procedure (MIP): Portugal and Romania; for Slovenia, the Commission deescalates the procedure. The other 10 countries will see no change in their status.
For the UK, the Commission conclude that the country is experiencing macroeconomic imbalances, which require policy action and monitoring. In particular, risks related to the high level of household indebtedness, also linked to structural characteristics of the housing market, continue to deserve attention. The resilience of the economy and financial sector has increased. However, a shortage of housing will persist and is likely to underpin high house prices in the medium term and continue to leave the sector less resilient in the face of risks.
Commenting on the report as a whole, Commissioner Pierre Moscovici, responsible for Economic and Financial Affairs, Taxation and Customs, said: “This is an important and balanced set of decisions which fully reflects the current economic situation. The Commission is demonstrating both the importance of structural reforms and the respect of our fiscal rules. Most of our Member States are doing the necessary efforts. Others need to accelerate and intensify their reform efforts and the reduction of their deficits and debt. We will continue to encourage them in this direction and will use all the legal tools at our disposal if necessary.”
As regards fiscal efforts, the Commission recommends that no excessive deficit procedure is triggered for Belgium, Italy and Finland, even though these countries’ efforts are not in line with the debt reference value. This is because the Commission takes into account key relevant factors under Article 126(3) of the Treaty on the Functioning of the European Union. The Commission also recommends that France be given until 2017 to correct its excessive deficit. The recommendation includes strict milestones for the fiscal adjustment path that will be assessed regularly, starting in May. This is meant to give France sufficient time to implement ambitious structural reforms.
Vice-President Valdis Dombrovskis, responsible for the Euro and Social Dialogue, said: “The package that the college discussed today constitutes the next milestone in the European Semester process after the adoption of the Annual Growth Survey last November. Obviously, our decisions take into account the global and national economic situation, as well as the intense interaction with Belgium, France and Italy in the past few weeks regarding their fiscal and structural reform plans.”
The report was particularly critical of France, saying that it is experiencing excessive macroeconomic imbalances, which require decisive policy action and specific monitoring. The Commission will take in May, on the basis of the National Reform Programmes (NRPs) and other commitments to structural reforms announced by that date, the decision to activate the Excessive Imbalance Procedure (EIP). In a context of low growth and low inflation, coupled with a poor profitability of companies, and given the insufficient policy response so far, risks stemming from the deterioration in both cost and non-cost competitiveness and from the high and rising French indebtedness, in particular public debt have significantly increased. The need for action so as to reduce the risk of adverse effects on the French economy and, given its size, of negative spillovers to the economic and monetary union, is particularly important.
The Commission is making these recommendations to the Council. They are expected to be discussed at the Council of Economic and Finance (ECOFIN) Ministers meeting in March. Also in March, the Commission will organise another round of bilateral meetings with the Member States to provide an opportunity to discuss the Country Reports. By mid-April, the Member States are expected to present their National Reform Programmes and their Stability or Convergence Programmes. Based on all these sources, the Commission will present a new, focussed set of Country Specific Recommendations for 2015-2016 in May, targeting the most important priorities to be tackled.
The surveillance package presented today follows the adoption of the Annual Growth Survey last November and sets out the analytical basis for the adoption of Country-Specific Recommendations (CSRs) in May. It is the first time the Commission presents the economic surveillance package in this format and publishes Country Reports so early in the Semester cycle. In the past years the reports – which were then called Staff Working Documents – were presented together with the Country-Specific Recommendations in May/June. Only the in-depth reviews which are now embedded in the Country Reports were published in March. Advancing the date of publication by three months allows more time for discussions with stakeholders and more ownership by Member States.
