Focus Paper no. 1 / 24 January 2018

Download PDFAn overview of public finance strategies in the 2018 DBPs of the euro-area countries


The Focus Paper (in Italian) and the associated interactive visualisation offer an overview of the Draft Budgetary Plans that the euro-area countries submitted to the European Commission and the Eurogroup last October. The DBPs were analysed last autumn by the Commission, which published its opinions on the budget strategies for 2018, assessing their consistency with the rules of the Stability and Growth Pact (SGP) and the recommendations approved in July by the EU Council.


The Focus is organised into two parts: the first is devoted to a comparison of the main public finance aggregates in the DBP of each country, while the second analyses the strategies presented in the DBPs of the main euro-area economies (excluding Italy) ‑ Germany, France, Spain, the Netherlands and Belgium.


In this round of opinions and following a specific analysis, the Commission for the first time decided to apply – clarifying that it was for 2018 only – its “degree of discretion” in determining the required structural adjustment in 2018 for those countries, such as Italy, Slovenia, Belgium and France, that would be called upon to make a significant correction of their public finances, i.e. at least 0.5 percentage points of GDP.


In order to exercise greater discretion in using the “matrix” governing the adjustment path toward the medium-term objective (MTO) in relation to cyclical conditions in the individual countries, the Commission conducted a careful analysis of the position of each Member State in order to reconcile the need for fiscal adjustment with support for the recovery. On this basis, the Commission concluded that no easing of the requirements was necessary for France and Belgium, while reducing the required adjustment from 0.6 to 0.3 for Italy and from 1 to 0.6 for Slovenia. For all of the countries the policy adjustment indicated in their DBPs for 2018, recalculated by the Commission, is still smaller than required, and in the case of France is in fact equal to zero, compared with 0.6 points.


The main observations drawn from the analysis performed in the Focus are as follows.


  • In 2017-2018, the nominal deficit is expected to improve by 0.3 percentage points of GDP for the countries considered compared with 2016, with an average nominal deficit of 1 per cent of GDP in 2018. Italy has a target for the average annual improvement of 0.5 percentage points, slightly larger than the average, and a 2018 deficit of 1.6 per cent, the third largest.


  • In 2017-2018, the DBPs indicated an average annual improvement of 0.2 percentage points of GDP in primary balances, which in 2018 would average 1 per cent of GDP. Italy’s objective for the annual average improvement was slightly higher than average (0.3 percentage points), with a target for the primary surplus of 2 per cent, about twice the average.


  • With regard to the public debt, in 2017-2018, all the countries taken as a whole would post an average annual reduction in the debt/GDP ratio of about 1.6 percentage points, lowering the figure to 86.5 per cent in 2018. Excluding Greece, Italy is again the laggard in the euro area, with a debt equal to 130 per cent of GDP; its reduction would also be smaller than average at 1 per cent.


  • The structural balances as recalculated by the Commission on the basis of the indications provided by the countries in their DBPs show no change between 2016 and 2018, the year in which the structural deficit averages of 1.1 per cent (but there is an improvement of 0.1 percentage points considering only the countries that have not achieved their MTO). Italy’s structural deficit in 2018 is larger than average at 1.9 per cent, while the average annual structural deterioration is 1 percentage points, less ambitious than the overall average and, in particular, than that of the countries that have not achieved their MTO.


  • The euro-area countries are estimated to have had a neutral fiscal stance in 2017, while in 2018 the start of a positive phase of the cycle would be accompanied by a slightly expansionary impulse, mainly due to Germany’s partial use of its fiscal space, having projected a structural primary surplus of 0.6 percentage points. The current policy scenarios point to a moderately expansionary stance in 2018 instead of the neutral position recommended by the European Commission, lagging behind the recommendation of the Commission for 2017.


  • Among the main euro-area countries, Germany continues to exceed its MTO in 2017-2018 as well, as does the Netherlands, which expects to achieve a debt/GDP ratio of less than 60 per cent as from 2017.


Text of document (in Italian)