The European Commission has presented today detailed new guidance on how it will apply the existing rules of the Stability and Growth Pact to strengthen the link between structural reforms, investment and fiscal responsibility in support of jobs and growth.
- Encourage effective implementation of structural reforms;
- Promote investment, specifically in the context of the new European Fund for Strategic Investments (EFSI) (see press release IP/15/3222 );
- Take better account of the economic cycle in individual Member States.
This guidance also serves to develop a more growth-friendly
fiscal stance in the euro area.
The Communication follows the commitment President
Jean-Claude Juncker made in his Political Guidelines,
on the basis of which the Commission was elected by the European Parliament.
Respecting the Pact, while making the best use of the flexibility which exists
within its rules, was also the focus of discussions of the June 2014 European
Council.
The Commission now gives Member States additional certainty
on how it will apply the Pact. Equal treatment of all Member States and
predictability of the rules are at the core of the Pact.
Valdis Dombrovskis, Vice-President for the Euro and
Social Dialogue, said: "The Stability and Growth Pact is the
cornerstone of European economic governance. We are making sure it is applied
in an intelligent, effective and credible manner. With today's guidance on the
use of flexibility within the Pact, we aim to facilitate structural reforms and
investment so necessary to spur growth and create more jobs in Europe. At the
same time, we are making sure the commonly agreed rules are followed.”
Pierre Moscovici, Commissioner for Economic and Financial
Affairs, Taxation and Customs, said: "Fiscal responsibility is
a necessary but not a sufficient condition for jobs and growth. We also need to
pursue structural reforms and step up investment. The smarter application of
the Stability and Growth Pact that we are announcing today will help us
to make more decisive progress on all three fronts."
1. Clarifications regarding structural reforms
The Commission will take into account the positive fiscal
impact of structural reforms. This applies to different degrees both, to Member
States respecting the Treaty's 3% of GDP deficit and 60% of GDP debt reference
values (preventive arm of the Pact), and to those that do not (corrective arm
of the Pact, in other words countries subject to an Excessive Deficit
Procedure).
For Member States in the preventive arm of the Pact, the
Commission will take account of the impact of reforms (the so-called
"structural reform clause"), provided that they are major, have verifiable long-term positive budgetary effects, including by raising
potential sustainable growth, and are implemented. Reform measures
adopted by the government and/or the Parliament may also qualify "ex
ante" if Member States have presented a dedicated structural reform plan
with well-specified measures and credible timelines for their adoption and
implementation.
The Commission will assess the reforms before recommending
to the Council to allow possible temporary deviations from the medium-term
budgetary objective (MTO) or the fiscal adjustment path towards it. Such
deviations should not exceed 0.5% of GDP. An appropriate safety margin must be
preserved so that the 3% of GDP deficit reference value is respected. The MTO
should be reached within four years of the clause being activated.
When opening an Excessive Deficit Procedure, the Commission
may recommend a longer deadline for the correction of the excessive deficit
provided that a dedicated structural reform plan as described above also
exists. For countries in Excessive Deficit Procedure, which have made the
required fiscal effort but need more time to reach the 3% reference value, the
Commission may recommend giving a longer extension to the correction deadline
provided that a dedicated structural reform plan as described above also
exists.
The Commission will closely monitor the reforms and will
propose necessary action if Member States fail to implement them.
2. Clarifications regarding investment
A favourable treatment for national contributions to the
EFSI
In its Investment Plan for Europe, published
last November, the Commission already indicated that it would take a
favourable position under the Pact towards national contributions to the EFSI,
for which the Commission also adopted a legislative proposal today. The
Commission now makes good on its commitment by stating that Member State
contributions to the EFSI will not be counted when defining the fiscal
adjustment under either the preventive or the corrective arm of the Pact. In
the case that the reference value of a 3% deficit is not respected, the
Commission will not launch an Excessive Deficit Procedure if it is due to the
contribution, provided the deviation is small and expected to be temporary.
When assessing respect of the debt criterion, contributions to the EFSI will
not be taken into account.
A more accessible and clearly defined “investment clause”
The Commission has provided guidance in the past on how to
consider public investments under the Pact. Today's Communication specifies and
formalises this guidance (commonly referred to as the “investment clause”). It
clarifies that Member States in the preventive arm of the Pact can deviate
temporarily from their medium-term budget objective or from the agreed fiscal
adjustment path towards it, in order to accommodate investment, under the
following conditions:
- Their GDP growth is negative or GDP remains well below its potential (resulting in an output gap greater than minus 1.5% of GDP);
- The deviation does not lead to non-respect of the 3% deficit reference value and an appropriate safety margin is preserved;
- Investment levels are effectively increased as a result;
- Eligible investments are national expenditures on projects co-funded by the EU under the Structural and Cohesion policy (including projects co-funded under the Youth Employment Initiative), Trans-European Networks and the Connecting Europe Facility, as well as co-financing of projects also co-financed by the EFSI.
- The deviation is compensated within the timeframe of the Member State’s Stability or Convergence Programme (Member States' medium-term fiscal plans
3. Clarifications regarding cyclical conditions
To better take account of the ups and downs in the economic
cycle, the Commission will use as of now a matrix that specifies the
appropriate fiscal adjustment expected from countries under the preventive arm
of the Pact. This means that Member States will be required to make a larger
fiscal effort during better times and a smaller fiscal effort during difficult
economic times.
For countries which are in the corrective arm and thus
subject to the Excessive Deficit Procedure, the Commission has developed a new
approach to assessing the delivery of the required structural fiscal effort,
which the ECOFIN
Council endorsed in June 2014. This helps to disentangle as much as
possible those budgetary developments that can be assumed to be under the
control of the government from those linked to an unexpected fall in economic
activity.
Next steps
The Commission is not proposing any changes to the
existing rules. Therefore, no legislative steps are needed and the
Commission will apply the new guidance immediately.
The Commission will enter into a dialogue with Member States
and the Council to provide any necessary explanations ahead of forthcoming
milestones, notably the presentation of the Stability/Convergence Programmes
and National Reform Programmes expected in spring 2015.
The Commission will also present this Communication to the
European Parliament.
In addition, the Commission will involve stakeholders at all
levels to define further steps towards the deepening of the Economic and
Monetary Union. The Euro
Summit of 24 October invited the President of the Commission, in close
cooperation with the President of the Euro Summit, the President of the
Eurogroup and the President of the European Central Bank, to prepare next steps
on better economic governance in the euro area. As agreed by the December
European Council, a report on these matters should be presented to heads of
state and government by latest June 2015. As part of its Work
Programme for 2015, the Commission has committed to take further steps
towards pooled sovereignty in economic governance.
