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Commission advocates budgetary support for economic growth

The European Commission unveiled yesterday its assessment of the 19 euro area countries’ budgetary situations and of their 2017 draft budgetary plans, European media report. According to Brussels, the Italian, Spanish, Portuguese, Belgian, Cyprian, Lithuanian, Slovenian and Finnish budget projects might not meet the set requirements.

Italy, in particular, is in the EC’s sights. However, as Commissioner Moscovici says in an interview with Il Sole 24 Ore, the EC is aware of the need to support the country, as it goes through such a delicate “economic and political phase”. Although a “significant portion” of Italy’s deficit is due to the massive exodus of refugees and the dramatic consequences of the earthquake, the core of Italy’ draft budgetary plan could still infringe on the Stability Pact and Italy should launch “additional measures” to balance its public finances.
Italian Prime Minister Matteo Renzi calls for an “end to the austerity policy” in Brussels and even threatens to scuttle the EU budget, to be agreed by means of a conciliation procedure with the European Parliament, if Brussels does not relent, Der Standard notes. Noting that Italian Prime Minister Matteo Renzi is surely a “convinced pro-European,” EP President Martin Schulz says, in an interview Corriere della Sera, that even though Mr Renzi’s approach may sound “not so diplomatic”, his political messages are clear and understandable – Europe needs to be woken up. In any case, Mr Schulz prefers the criticism of those who want to wake Europe up rather than the attacks of those who want it “to fall asleep forever”.
Writing in the Daily Telegraph, Ambrose Evans-Pritchard however suggests that the continuing weakness of the Italian economy, where economic output is still 9% below its pre-Lehman peak, could be the trigger that causes the eurozone to collapse. What is more, the European Commission will not suspend disbursement of EU funds to Spain and Portugal in 2017 despite their breach of the Stability and Growth Pact, Spanish and Portuguese media – such as El Mundo and Público – say, as do some other media in Europe.
The draft budgets submitted by Spain and Portugal indeed convinced the EC to drop the planned sanctions in recognition of the two countries’ effort to remedy the situation, sums up. Although Brussels’ requests have not been respected, Spain, Portugal and Italy actually escape sanctions from the EC, thanks, for instance, to their recent efforts considered as sufficient, Les Echos notes. “We must not overwhelm them but continue to help them exiting the crisis,” underlined EcoFin Commissioner Moscovici. However, the EC asked the three states to make efforts with next year’s budgets since they pose “a risk of non-compliance” with EU rules.
Les Echos points out that Brussels’s choice represents “an additional political signal of the Juncker Commission’s refusal regarding a too strong austerity.” “Our role is to strengthen the economic recovery,” which is still too “weak,” stressed EC Vice-President Valdis Dombrovskis.
Concerning France, the draft budget law for 2017 is considered “globally compliant” by the European executive, which is “good news that has been long awaited” according to Commissioner Moscovici, French media report. The EC also set the community bloc’s economic and social priorities for the year ahead, confirming the need to move towards a more positive fiscal stance for the euro area, Radio Romania Actualitati reports.
The European Commission indeed urged member states to step up efforts aimed at stimulating the economy and creating new jobs and these efforts must be doubled, EC President Juncker stressed, as quoted by Der Standard. There has to be “an economic and social change,” Mr Juncker said.
As an unprecedented move, the EC called, due to global insecurities, for an expansionary budgetary orientation for the euro area, from around 0.5% of GDP in 2017, sources such as Público, Les Echos and FAZ report – the German newspaper highlighting that, in doing so, the EC specifically addressed Germany.
The European Commission indeed emphasised that this recommendation targets the economically stronger countries and that countries under the corrective arm of the Stability and Growth Pact, should keep consolidating, Público notes, adding that, in other words, the EC is telling Member States to spend more without paying too much attention to fiscal balance.
Commissioner Moscovici said that until now, politics were the result of a statistical aggregation and that the European Commission now wants to start acting as a kind of Finance Minister of the Eurozone.
In FAZ, Werner Mussler strongly criticises this attempt, noting that politicking in times of increasing global uncertainties is ridiculous, especially since the EC itself fails to implement its very own rules. Mr Mussler further highlights that the European Commission neither has the economic nor the legal basis to direct the euro area’s fiscal policies and concludes that Mr Moscovici’s announcement is one more step towards the European Commission’s “self-demolition.”
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