Let no one say that they were not warned… Today Brussels will urge European governments to tighten their belts with a view to the 2024 budgets and to begin designing paths for fiscal adjustment in the stability and convergence programs that they must send to the community capital in April.
The objective is to avoid surprises and prepare for the reactivation of the stability pact next year in its current form. It will be a year of transition, the last before the entry into force of new, more flexible fiscal rules regarding debt; hence the decision of the European Commission not to apply this criterion for now. But what it will do in April 2024, as the Vice President of the European Commission, Valdis Dombrovskis, and the Commissioner for the Economy, Paolo Gentiloni, will announce today, will be to reopen files for excessive deficit to countries in which this indicator exceeds the 3% of GDP.
Spain is one of the ten countries that, according to the figures for 2022, risks being filed, hence the weight of the message that the European Commission will launch today. At the gates of the municipal elections and only six months from the general ones, the Government of Pedro Sánchez must present a more restrictive budget than the previous ones and gradually eliminate, for example, the aid agreed to mitigate the energy crisis.
According to the forecasts published in November by the EC, Spain was on track to end 2022 with a deficit of 3.4% of GDP. The latest update from the Fiscal Authority (Airef) raises it to 4.5% of GDP. What Brussels expects with regard to the 2024 budgets is for governments to assume their fiscal situation and change their mental framework to move from the current scheme of supporting the economy to one of consolidation. And that, anticipating the philosophy of future rules, propose deficit reduction paths in accordance with their situation. If the objectives that are set are not aligned, Brussels will propose alternatives.
The budgetary policy guidelines that Dombrovskis and Gentiloni will announce today try to serve as a bridge between the current fiscal rules, which will be reactivated in 2024, when the general escape clause released as a result of the pandemic is suspended, and the new stability pact . Although the nominal indicators of the 3% deficit and 60% public debt are not going to be touched, the draft of the political agreement reached this week by the representatives of the 27 national treasures heralds important changes towards a much less rigid and automatic system that the one applied during the financial crisis. The good results of the flexibility agreed during the pandemic and the first year of war in Ukraine, which Brussels considers to have been satisfactorily weathered in macroeconomic terms, have served as support for the new approach.
The main innovations included in the text, to which La Vanguardia has had access, include the design of tailor-made suits for each country to adapt the rate of public debt reduction to its starting situation and take into account extenuating factors, in addition to softening objectives in exchange for making certain reforms and investments. The debt must be reduced “gradually and realistically”, says the draft of the agreement, which even provides for the possibility of invoking the escape clause “specifically” for a country and temporarily excluding it from the application of the pact to allow it to face situations ” out of government control”, such as a natural disaster.
Another novelty is the possibility that the adjustment period “could be extended” if a country commits to making “reforms and investments that increase growth prospects, strengthen public finances and therefore their long-term sustainability”, at the same time that respond to the “strategic priorities of the EU”, that is, the green transition, digitization and defense. The entire exercise is designed to reinforce the identification of the governments with the adjustment paths, which is why the door is opened to review the objectives or the adjustment measures after each electoral cycle with a new government.
Article 7 of the agreement, which includes some precautions required by Germany and other countries, nevertheless represents a kind of emergency brake on all these promises of flexibility, by providing for the possibility of agreeing on a “common quantitative indicator” that allows a level to be imposed. minimum cuts to all countries. EU finance ministers are expected to give their go-ahead to the text on March 24, which still needs to be translated into a legislative proposal and adopted. Spain, which will assume the rotating presidency on July 1, will lead the debates during the second half of the year.
