Stability and Growth Pact: EU budgetary rules could be suspended for longer

The Russian invasion of Ukraine and the economic sanctions against Russia will slow, but not stall, growth in the EU for the foreseeable future.

That is the preliminary assessment of the EU Commission.

Economic Commissioner Paolo Gentiloni said in Brussels on Wednesday that it was still too early for a reliable assessment.

However, he had already warned of "geopolitical risks" when he presented his authority's current growth forecast three weeks ago.

“These risks have materialized in dramatic ways much faster than we could have imagined.

There is war in Europe.”

Werner Mussler

Business correspondent in Brussels.

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The previous forecast for 2022 of 4 percent growth in the EU can no longer be maintained, said the Italian.

The Russian invasion will have an impact through various channels.

“There will be repercussions on financial markets and further pressure on energy prices.

I also fear that gaps in supply chains will remain for a long time," stressed the commissioner.

Growth will certainly slow down.

However, he is sticking to his expectation that the recovery after the corona pandemic can be sustained.

Gentiloni made the comments when presenting his agency's budgetary recommendations to member states.

As a rule, these receive little attention because the Commission only makes its decisions, for example in deficit procedures, in early summer.

However, the Italian already announced on Wednesday that the Commission intends to take sanctions against the member states because of their budgetary policies in the autumn at the earliest and initiate deficit procedures.

Because of the corona pandemic, the authority suspended the budget rules, which enable budget monitoring and sanctions in the event of excessive debt, until the end of the year anyway.

Commission wants to reform stability pact

Gentiloni and Commission Vice-President Valdis Dombrovskis expressly did not rule out that the rules would remain suspended for a longer time because of the war in Ukraine.

The budgets of most Member States would face new burdens not of their own making.

They could be caused by additional expenses and lower income.

The existence of an extraordinary burden is considered a prerequisite for a further suspension.

Dombrovskis said it was too early to make a decision.

However, the Commission can act flexibly and at short notice.

A decision is likely to be made immediately after the spring forecast is published.

This is expected in early May.

It is already clear that the EU authority will not apply the so-called one-twentieth rule in the coming year either.

It states that euro states with a debt ratio of more than 60 percent of their economic output must reduce one twentieth of the difference between the 60 percent and the actual ratio every year.

This rule proved to be unenforceable even before the Corona crisis.

In the pandemic, debt has continued to grow in almost all countries.

It is considered unrealistic that countries like Greece, with public debt around 200 percent, or Italy, with more than 150 percent, can comply with the one-twentieth rule.

Therefore, regardless of the war in Ukraine, the commission wants to revise the budgetary rules and abolish these rules.

Gentiloni said the end result must be rules that enable debt reduction and solid growth at the same time.

However, he does not want to make the discussion about a long-term reform of the EU Stability Pact dependent on whether it will be in force in the short term or not.

The reform of the pact is controversial among the member states.

Brussels is now saying that it cannot be completed before the end of 2023.

The EU finance ministers discussed the economic consequences of the Ukraine war in a video conference on Wednesday.

Decisions were not expected.

The incumbent Council President, France's Finance Minister Bruno Le Maire, wanted to keep his counterparts, especially from the small member states, up to date on the sanctions decisions that had been taken extremely quickly over the past few days.

The large member states Germany, France and Italy were also involved in the sanctions decisions at the level of the leading industrialized countries (G7).

Poland and the Baltic states in particular repeatedly complained that the sanctions imposed by the EU and G7 did not go far enough.