EU deficit rules to remain suspended in 2022


2nd June, 2021 05:49:24 PM printer

EU deficit rules to remain suspended in 2022

Rules against overspending by EU governments will remain suspended through 2022 leaving enough time for stimulus plans to boost the economy to pre-crisis levels, the European Commission said on Wednesday.

"The recovery remains uneven and uncertainty is still high, so economic policy must remain supportive in both 2021 and 2022," EU Executive Vice President Valdis Dombrovskis said.

The EU executive suspended the public spending rules for national governments in March 2020 as the European Union sank into its deepest recession since World War II thanks to Covid-19 pandemic restrictions.

Trailing the strong recoveries in the US and China, the economy in Europe fell into a second recession early this year and is not expected to regain its pre-crisis form until later in 2022.

Known as the Stability and Growth Pact, the rules limit deficit spending at three percent of the overall economy and debt at 60 percent.

The rules are often violated but, while countries in theory risk penalties for ignoring them, no government has ever been sanctioned.

The limit on debt is often overshot even in normal times and 13 countries are currently above the limit including Italy, Spain, and France where debt is over 100 percent of GDP.

The pact mainly empowers the EU executive and fellow member states to keep a careful eye on how national governments run their budgets.

The commission, with the backing of the member states, also signals what reforms need to be carried out in order to get a thumbs up from the EU.

The fiscal rules are however quite controversial, with member states complaining that they are ineffective and outdated.

There are also big arguments over the actual danger of running a high debt when the financial markets seem to be unbothered by the public debt piles in countries like Italy, France or Belgium.

The EU-27 are committed to reforming the pact, with some hopeful that this will be done before the end of the suspension, which is now most likely on January 1, 2023.