In exceptional times, exceptional measures.

Not yet recovered from the shock of the Covid pandemic, the European economy is facing soaring prices and a sharp slowdown in growth caused by the military conflict with Russia.

To give itself some air, the EU prefers to give up restoring its budgetary corset until the end of next year.

"We propose to maintain in 2023 the general safeguard clause", which makes it possible to temporarily derogate from the limits of debts and deficits fixed by the Stability Pact, declared the Vice-President of the Commission, Valdis Dombrovskis, during a press conference.

"This offers leeway to national budgetary policies to react quickly if necessary," he explained, while calling for rigorous management of public funds.

The economy is suffering from soaring commodity prices which, beyond energy, are spreading to food prices.

The conflict has also increased supply chain problems and increased uncertainty for both businesses and households.

The war and the impact of sanctions against Russia prompted Brussels last week to drastically cut its GDP growth forecast for the EU and the euro zone in 2022. It now expects 2.7% against 4% at the start. year and does not rule out further deterioration.

However, Brussels wants to allow massive investments to eliminate as quickly as possible European dependence on Russian oil, gas and coal in order to no longer finance Moscow's war effort.

The Commission presented Thursday a plan to 210 billion euros to finance new energy infrastructure.

In this context, it is impossible to impose excessively strict limits on the public accounts.

"All Member States must promote and develop public investment for the green and digital transition and for energy security. However, strict control of other current expenditure is necessary", in particular for the most indebted countries, underlined Ms. Dombrovskis.

"Pressure from Club Med"

The Commission will not crack down in the short term, but it will monitor compliance with its recommendations by member states.

The excessive deficit procedures, provided for by European rules, will not be activated, at least until a new assessment scheduled for the fall and then next spring.

The Stability Pact, which limits public deficits to 3% and debt to 60% of Gross Domestic Product (GDP), was suspended at the start of 2020 due to the global Covid-19 pandemic.

This allowed the 27 member countries to incur exceptional expenditure to support households and businesses to avoid an economic crash.

“We are not proposing a return to unlimited spending,” European Commissioner for the Economy Paolo Gentiloni insisted on Monday, as Brussels tries to reassure Germany and its “frugal” allies in northern Europe, fervent defenders of budgetary rigor and worried about seeing a blank check offered to the countries of the South, which are supposed to be more spendthrift.

Monday's decision drew criticism.

"Not restoring the EU's budgetary rules in 2023 is a serious mistake, which will cost us dearly later, said German MEP Markus Ferber (EPP, conservative). The Commission gave in to pressure from Club Med. This is another nail in the coffin of the Stability and Growth Pact".

Brussels had planned to present proposals for reforming the pact in June, at the request of several countries including France, which considers it "obsolete", and a debate was to open in the process.

It will be delayed by "a few months" announced Valdis Dombrovskis on Monday.

"The war in Ukraine forced us to focus on immediate measures", slowing down work on this reform, he explained.

He underlined the need to find "a consensus" on this question which divides the Member States.

© 2022 AFP

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