Focus Paper no. 6 / 11 July 2017

In today’s meeting, ECOFIN definitively adopted the country-specific recommendations developed on the basis of the Stability and Convergence Programmes (S&CP) that the EU countries submitted last April. This Focus Paper (in Italian) and the associated infographic compare the fiscal policies of the EU countries addressed by the recommendations initially formulated by the Commission on 22 May, which were subsequently modified by ECOFIN on 16 June and then approved by the European Council of 22-23 June. This completed the analysis and coordination phase for the fiscal policies of the EU Member States and marked the beginning of the implementation of national fiscal policies.

The analysis of the SCP of the Member States and the assessments of the Commission show that overall the process of adjusting the public finances is continuing, albeit at a more moderate pace than in the past. This is partly in response to the desire to avoid strangling the weak signs of recovery that are emerging in Europe. In addition, for many countries (Germany and the Netherlands first and foremost), the adjustment process has already been completed: their medium-term objective, i.e. a budgetary position in or close to balance, has been achieved or even overachieved. Moreover, these countries have achieved a persistent reduction in their debt/GDP ratios. Finally, only two countries – France and Spain – remain subject to an excessive deficit procedure (EDP), i.e. countries whose deficit/GDP ratio exceeds 3 per cent (the United Kingdom is expected to close its procedure shortly).

The following offers a summary of the main indications highlighted in the Focus on the basis of a comparison of the various budget indicators for 2016, 2017 and 2018, the years to which the Stability and Growth Pact applies.

1. Nominal deficits are below the 3 per cent of GDP threshold on average for the European countries and show an improvement over the period under review: from 1.7 per cent in 2016 to 1.1 per cent in 2018. Spain and France, both of which are subject to an EDP, posted larger deficits in 2016, at 4.5 per cent and 3.4 per cent respectively. For Portugal and Croatia, the Commission decided to close the EDP as the two countries posted deficits below 3 per cent of GDP (2 and 0.8 per cent respectively). Luxembourg has the largest surplus, at 1.6 per cent.

 

2. Average primary balances are positive and improving, from an average EU surplus of 0.4 per cent of GDP in 2016 to one of 0.9 per cent in 2018. Between 2016 and 2018, Spain reports the largest average annual improvement in both the nominal balance (1.2 per cent) and the primary balance (1.1 per cent). Latvia indicates the largest average annual deterioration for both balances (0.8 and 0.9 per cent respectively).

 

3. In 2016 the average debt/GDP ratio exceeded the 60 per cent threshold: 85 per cent for the EU countries as a whole and 90 per cent for the euro-area countries. Excluding Greece (with a public debt in 2016 of 179 per cent of GDP), Italy remains the country with the highest debt/GDP ratio at 133 per cent in 2016. Conversely, Estonia has the lowest debt at 10 per cent. For 2017 and 2018, the average ratio is expected to decline by about one percentage point a year, but with considerable differences across countries: from Cyprus, with an expected average annual reduction of about 4 percentage points, to Luxembourg and Romania, with increases of 1.2 and 1.7 per cent of GDP respectively.

 

4. The average EU structural budgetary position deteriorates by 0.2 per cent a year (0.1 per cent for the euro-area countries), with Belgium showing the largest expected average annual improvement (0.8 per cent) and Luxembourg registering the largest average annual deterioration (1 per cent).

 

5. For Romania, which shows a significant deviation from the objectives of the structural balance rule and the net expenditure benchmark, the Commission and the Council have opened a formal proceeding to ensure the country corrects that deviation. Hungary and Belgium show a significant deviation from the objective for the net expenditure benchmark (1.4 and 0.6 per cent respectively), but not from the objective for the structural balance. Bulgaria, Germany, Luxembourg, the Netherlands, the Czech Republic and Sweden comply with or exceed the objectives under both rules.

 

6. Germany and the Netherlands present a budgetary strategy that provides for maintaining a structural surplus in the coming years, even though the medium-term objective (MTO) for both countries is a structural deficit of half a percentage point of GDP. The text of the recommendation prepared by the Commission suggested that the two governments use the room available in the budget to support aggregate demand. The Council approved a text in which this recommendation appears to have been attenuated.

 

7. A comparison with the SCP for 2016 shows that a year ago no country expected to have a nominal deficit of more than 3 per cent of GDP in 2017, while in this year’s programmes Spain forecasts a nominal deficit of 3.1 per cent of GDP in 2017. Moreover, according to the Commission’s projections, France and Romania could also have a deficit of more than 3 per cent in 2017. In the case of France, this could jeopardise closure of the EDP.

 

8. Thanks in part to the more favourable balances for the countries with budget surpluses, such as Germany and the Netherlands, the forecast average reductions in debt are slightly larger in the 2017 SCP than in those for 2016. The objectives for improvement in the structural balance set out in this year’s SCP are virtually unchanged on those for last year.

Text of document (in Italian)