The European Commissioner for the Economy, Paolo Gentiloni, admits that the return to European fiscal rules, with the euro’s largest economies planning strong adjustments from next year, will leave the single currency bloc on a “narrow path” towards the objective investment reinforcement, considered crucial to avoid loss of competitiveness compared to the United States and China and to accelerate economic growth.
The head of the European executive admitted the difficulties when entering the meeting of Eurozone finance ministers, this Monday, in Brussels, in which the macroeconomic scenario for the bloc will be discussed and also the report on “The Future of European Competitiveness ” produced by Mario Draghi, who warns of additional annual investment needs in the European Union equivalent to close to 5% of the GDP of the 27.
“It’s a challenge. It’s not guaranteed that we will be able to reinforce investments”, admitted Gentiloni at a time when Germany, France, Italy and Spain – the four largest economies in the euro – begin budgetary consolidation processes to reduce debts and deficits excessive. In the first three cases, the adjustment planned for 2025 exceeds 0.5 percentage points of GDP in improving the structural balance, and in the case of Germany the requirement arises from the country’s internal budgetary rules. In the rest, it happens through the imposition of the new format of European budgetary rules.
“In the state we are in, budgetary consolidation is necessary, especially in some countries, but at the same time the need for investments and reforms is absolutely crucial”, said the European Commissioner who, until the end of the current mandate of the executive Von der Leyen , is in charge of monitoring the medium-term plans that Member States are presenting to guarantee the reduction of debt and budget deficits.
The plans were designed by governments based on an expenditure trajectory recommended by the European Commission, with the evolution of net primary expenditure being the main operational indicator of adjustments in this new framework. Paolo Gentiloni indicated, however, that Brussels will also be attentive to the intention to carry out investments and reforms, in which case Member States can ease the adjustment effort over a period of seven years.
“We are not just looking at the expenditure trajectory, but we are looking especially, in countries that ask for a seven-year adjustment period, for reforms and investments,” he said.
Italy, France and Spain are among the countries that have already presented a proposal for a seven-year adjustment.
It will be up to the Commission, in the coming weeks, to evaluate the reform and investment plans associated with this longer period for adjustment.
On the other hand, Gentiloni highlighted the greater flexibility given by the new European tax rules to investments in the Defense area. Still, countries like Poland, which is preparing to increase defense investment to 4.7% of GDP, are calling for military spending to be excluded from the spending caps in the new rules.
“The path is narrow, but the need for stronger investment – which was very clearly highlighted by Mario Draghi in his report – exists”, highlighted the commissioner.
For defense spending, as well as for the recovery of European technological backwardness, Commissioner Gentiloni understands that it will be “indispensable” to have common European financing, on the form of which the governments of the Member States have opposing views, with countries like Germany strongly against the issuance of common debt – the option defended by Mario Draghi.
For now, countries continue to discuss priorities for future common financing, whatever form it may take. A statement to this effect is expected at the end of the Eurogroup meeting.
The head of Brussels responsible for the Economy commented, however, on the most recent data on the evolution of the euro economies, which achieved growth in the third quarter well above expectations (0.4% quarter-on-quarter variation in GDP). Spain, Germany and France influenced the surprise in the data collected by Eurostat.
“I would describe the economic situation as one of moderate expansion”, stated Gentiloni, not ruling out upward revisions in estimates for this year (the spring package forecast pointed to 0.8% annual growth this year).
The Commission’s new projections will be announced on the 15th.
Source: www.jornaldenegocios.pt
