The European Commission will endorse Ireland’s 2015 budget today, when it delivers its verdict on euro zone countries’ national budgets in Brussels.
The Commission is expected to give the green light to all euro zone economies following a review of their draft budgetary plans. The 18 euro zone countries, except programme countries Greece and Cyprus, were obliged to submit their national budgets for scrutiny to the EU’s executive arm by October 15th this year.
Despite conflict between the Commission and France and Italy over the scale of the budgetary consolidation required to comply with Stability and Growth Pact rules, the Commission is expected to endorse the budgets of the euro zone’s second and third largest economies, but will tell Paris and Rome that they face a second review in March.
Any perceived leeway given to France and Italy is unlikely to be welcomed in Frankfurt or Berlin. Speaking in Helsinki yesterday, ECB president Mario Draghi urged euro zone member states to adhere to budgetary rules. “The importance of each country sticking to its commitments under the stability and growth pact should . . . be beyond debate,” the ECB president said, adding that a fiscal as well as monetary union was needed in the euro area.
Increased adjustment
Paris has been in continual conflict with Brussels over its adherence to EU targets, announcing last month that it would again miss its deficit target of 3 per cent of GDP by a further two years. But following behind-the-scenes negotiations between Paris, Brussels and the Commission, Paris agreed last month to increase its structural deficit adjustment to 0.5 per cent from 0.2 per cent in GDP. The European Commission is expected to tell France today that it will review the country’s commitment to that revised figure in March, when the final figures for 2014 are known. France has been in the so-called “excessive deficit” procedure since 2013. Its deficit is expected to reach 4.6 per cent of GDP next year, in breach of the EU deficit ceiling of 3 per cent.
Further, today’s assessments will be delivered by the man who was French finance minister between 2012 and April this year. Pierre Moscovici was appointed as the EU’s new economics commissioner earlier this month, though former Finnish prime minister Jyrki Katainen is also a central figure in the Commission’s economic governance in his role as Commission vice-president for Economic and Monetary Affairs.
Today’s announcement is part of the so-called European “Semester” , a system of fiscal monitoring enforced by the European Commission. Technically the Commission can impose fines of up to 0.7 per cent of GDP should countries not take action to address non-compliance with EU budgetary rules.
Two-pack rules
While all 28 EU member states are obliged to comply with “six pack rules” introduced under the Fiscal Compact Treaty, the 18 euro zone countries face additional scrutiny by way of so-called “two pack rules”, which came into force in May last year. Both sets of regulations were introduced to strengthen Stability and Growth Pact rules in the wake of the financial crisis.
Announcing the EU’s new €315 billion investment package this week in Strasbourg, European Commission president Jean-Claude Juncker warned that the investment plan was not the sole solution to Europe’s economic problems, stressing the need for structural reforms and budget consolidation. A number of MEPs requested that the investment plan contain some element of conditionality, to ensure that countries that benefitted from projects financed by the fund continued to implement structural reforms.
Mr Juncker also confirmed this week that capital investments by governments in the project would not be included in member states’ debt and deficit targets under the Stability and Growth Pact.
