Spain and the other countries with high public debt – Belgium, Greece, France and Italy – will have to make an extra effort in 2025 to reduce their public deficits, taking advantage of the better economic situation and the momentum provided by recovery plans. This is the recommendation made in an analysis published yesterday on next year’s budget policy by the European Fiscal Council, an advisory body to the European Commission that does not accept Brussels’ decision to release Spain from the excessive deficit penalty.
“Member states with very high debt levels, such as Belgium, Greece, Spain, France and Italy, which according to the Commission’s latest sustainability assessment are classified as high risk in the medium term, should seize the opportunity to provide additional loans,” the report, which calls for a restrictive fiscal stance in 2025, says, and efforts to reduce their structural budget deficits.
The document notes that the Commission’s and other international bodies’ forecasts for a positive economic development next year, with the eurozone operating “at full capacity” in 2025, with inflation levels slightly above the European Central Bank’s 2% target and tight labor markets. Added to this are the EU’s next-generation recovery plans, which will contribute around half a point to eurozone growth. “Given the favourable macroeconomic outlook and the high level of fiscal support, a restrained fiscal stimulus in 2025 is appropriate,” the paper says, calling for addressing the cumulative spending gap while protecting investments. All this, in a crucial year that will come with a new tax structure, the transformation of which raises “significant concerns” in the European Fiscal Council. “Although the provision will be formally deactivated at the end of 2023, the way in which the EU’s fiscal control will be implemented in 2024 remains uncertain,” the experts acknowledge.
Financial rules
Under his recommendation, both the European Commission and Ecofin should proceed with “the timely introduction of excessive deficit measures” and clarify “how they propose to deal with the budgetary deviations that will emerge in many countries in 2024,” he noted in his report. The document by the organization’s president, Niels Thygesen, who recognizes that delaying the guidelines until the fall adds uncertainty to budget policy next year.
That is, after reactivating the tax rules and adopting the new structure, the European Commission proposed on 19 June seven infringement proceedings against seven countries – France, Italy, Belgium, Poland, Hungary, Slovakia and Malta – for excessive deficits, although the adjustment that countries will have to make to clean up their accounts will only be defined in November, once the national budget process has reached an advanced stage.
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