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European Commission - Press release

Commission adopts Opinions on the 2016 Draft Budgetary Plans of euro area Member States

Brussels, 17 November 2015

The European Commission has completed its assessment of the 16 Draft Budgetary Plans (DBPs) for 2016 that euro area Member States submitted by 15 October.

Cyprus and Greece did not submit a DBP as they are under economic adjustment programmes. Portugal did not submit a plan within the deadline set by EU legislation. The Commission already adopted an Opinion on the Draft Budgetary Plan of Spain.

With these Opinions, the Commission assesses the compliance of the Draft Budgetary Plans for the following year with the provision of the Stability and Growth Pact (SGP). No DBP for 2016 has been found in particularly serious non-compliance. In several cases, however, the Commission finds that the planned fiscal adjustments fall short, or risk doing so, of what is required by the SGP.

In addition to the country-specific analyses, and based on the Member States' budgetary plans, the Commission assessed the budgetary situation and fiscal stance in the euro area as a whole.

The Commission also prepared reports on Bulgaria, Denmark and Finland under Article 126(3) of the Treaty on the Functioning of the European Union (TFEU), analysing the breach of the deficit target and, in the case of Finland, the debt criterion. In all three cases, the reports conclude that the deficit and, where applicable, the debt criterion of the Treaty are considered as currently complied with.

Vice-President Valdis Dombrovskis, responsible for the Euro and Social Dialogue, said: “In recent years, we have improved how we coordinate economic policy across the EU. Efforts to pursue more responsible budgetary policies, lower interest rates and the ongoing moderate recovery underpin the continuing decline in public deficits, which fell from 2.4% of GDP in 2014, to 1.9% this year and it is planned to decline further to 1.7% in 2016. For the first time since the beginning of the crisis, we see debt starting to fall too. Still, the picture varies from country to country and the problem of high debt is still holding back a faster recovery. It is important for some governments to continue implementing responsible fiscal policies and for others to continue cleaning up their public finances."    

Pierre Moscovici, European Commissioner for Economic and Financial Affairs, Taxation and Customs, said: "Three years into the implementation of the euro area's new budgetary framework, most countries are compliant or broadly compliant with the requirements. The euro area continues to improve its public finances, helped along by a strengthening economic recovery."

Commission Opinions on Draft Budgetary Plans

Regarding the twelve countries in the preventive arm of the SGP (i.e. with a budget deficit under 3%):

- for five countries (Estonia, Germany, Luxembourg, the Netherlands and Slovakia), the budget plans are found to be compliant with the requirements under the SGP.

- for four countries (Belgium, Finland, Latvia, Malta), the DBPs are found to be broadly compliant with the SGP provisions. For these countries, the plans might result in some deviation from the adjustment paths towards each country's Medium-Term budgetary Objective (MTO).

- for three countries (Austria, Italy and Lithuania), the DBPs are at risk of non-compliance with the requirements for 2016 under the SGP. The budget plans of these Member States might result in a significant deviation from the adjustment paths towards the Medium-Term Objective (MTO).

Regarding the five countries currently in the corrective arm of the SGP (i.e. in Excessive Deficit Procedure):

- for three countries, (France, Ireland and Slovenia) the DBPs are found to be broadly compliant with the requirements for 2016 under the SGP.

France, which is required to correct its excessive deficit by 2017, is projected to meet the intermediate recommended headline targets for 2015 and 2016. However, it does not yet ensure a timely correction of the excessive deficit by the 2017 deadline and the recommended fiscal effort is not projected to be met throughout the EDP period. This poses risks to compliance with the Council requirements under the EDP.

Ireland and Slovenia could move to the preventive arm of the Pact from 2016, provided a timely and sustainable correction of the excessive deficit is achieved in 2015. For 2016, there is a risk of some deviation (close to being considered significant in the case of Slovenia) from the adjustment path towards the MTO in 2016.

- The DBP of Spain, the Opinion on which was already adopted in October, contains risks for its compliance with the EDP requirements: neither the recommended fiscal effort nor the headline deficit target for 2016 is forecast to be achieved.

- Portugal has not presented a DBP yet. The Commission urges Portugal to do so as soon as possible.

The Commission asks countries whose plans are considered broadly compliant or at risk of non-compliance with the Pact to take the necessary measures within the national budgetary process to ensure that the 2016 budget will be compliant with the Pact.

Overall euro area deficit and debt are expected to fall

After falling significantly from 2.4% of GDP in 2014 to 1.9% in 2015, the aggregate budget deficit for the 16 euro area countries that submitted a DBP should decline further to 1.7% of GDP in 2016, according to their Draft Budgetary Plans. That compares with the Commission’s own assessment, set out in the Autumn Economic Forecast, which points to an improvement in the aggregate budget deficit from 2% of GDP in 2015 to 1.7% in 2016.

Based on the DBPs, the aggregate debt ratio for the euro area in 2016 should also decrease slightly from an estimated 91.1% in 2015 to just below 90% of GDP for 2016. This is largely in line with the Commission's Autumn Economic Forecast, which projects a slight decrease from 91.6% in 2015 to 90.5% in 2016.

Overall fiscal stance is expected to remain broadly neutral

The Commission's forecast points to the continuation of a broadly neutral fiscal stance (neither tightening nor loosening of public spending or taxation) in 2016 for the euro area as a whole. This should be assessed against the twin objectives of long-term sustainability of public finances and short-term macroeconomic stabilisation, namely the need to ensure a move away from external to domestic sources of growth. In these terms, the expected neutral aggregate euro area fiscal stance for next year appears broadly appropriate in light of the historically low interest rates and high external surplus of the euro area.

Third annual assessment of DBPs

This was the third time that the Commission assessed DBPs. The Opinions are rooted in the 'Two Pack' legislation, which entered into force in May 2013. Its aim is to improve the effectiveness of economic and budgetary policy coordination in the euro area. According to EU legislation, all euro area Member States not under a macroeconomic adjustment programme have to submit their draft budgetary plans to the European Commission and the Eurogroup by 15 October each year.

Taking account of the refugee crisis

The budgetary impact of the exceptional inflow of refugees in the EU is mentioned in a few DBPs. Other Member States may also be concerned in the meantime or might be in the future. The flexibility embedded in the SGP allows accommodating the incremental spending in a given year linked to unusual events outside the control of the government, both under the preventive and the corrective arm of the Pact.

The Commission is willing to use these provisions. It will monitor the situation closely on the basis of observed data as provided by the authorities of the concerned Member States to determine eligible amounts. This information will be used when assessing (ex post) possible temporary deviations from the SGP requirements for 2015 and 2016. This means that deviations deriving only and directly from the net extra costs of the refugee crisis will not lead to any stepping up in the procedures. This applies also to the opening of an Excessive Deficit Procedure provided that the general government deficit remains close to 3% of GDP in case of a breach of that threshold.

Steps under the Excessive Deficit Procedure (Article 126 TFEU)

Assessment for Bulgaria. The Commission has adopted a report for Bulgaria under Article 126(3) of the Treaty. Whilst government debt remains below 60% of GDP, the general government deficit in Bulgaria reached 5.8% of GDP in 2014, above and not close to the 3% of GDP target. However, the excess over the target can be qualified as exceptional and temporary within the meaning of the Stability and Growth Pact,as the general government deficit is projected to decline to 2,8% of GDP in 2015 and as it results from an unusual event outside the control of the government, linked to the statistical reclassification of the Deposit Insurance Fund.

After considering relevant factors such as the cyclical conditions and the development of public investment, as well as broad compliance with the requirements of the preventive arm of the Pact, the report concludes that the deficit criterion is considered as currently complied with.

Assessment for Denmark. The Commission has adopted a report for Denmark under Article 126(3) of the Treaty. Whilst government debt remains below 60% of GDP, the general government deficit in Denmark is planned to reach 3.3% of GDP in 2015, above but close to the 3% of GDP target in the Pact. The estimated excess over the target set out in the Treaty can be qualified as exceptional and temporary in the sense of the SGP, as the general government deficit is projected to return to below 3% of GDP as of 2016. It can be also considered as exceptional as it results from extraordinary losses in tax revenue, related to technical errors in an automatic tax collection system. The report concludes that the deficit criterion is considered as currently complied with.

Assessment for Finland. The Commission has adopted a report for Finland under Article 126(3) of the TFEU. Concerning the deficit criterion, the government deficit in Finland is expected to fall below the 3% of GDP target in 2016. On this basis, the current excess over the 3% of GDP target of the Treaty (notified at 3.3% of GDP in 2014 and planned at 3.4% in 2015) can be considered close and temporary, and it can be qualified as exceptional in 2014. As regards the debt criterion, the Commission forecasts that the Finnish government debt will be 62.5% of GDP in 2015 and 64.5% in 2016. The Commission found that Finland is expected to broadly comply with the required adjustment path towards the MTO in 2015 and 2016. On that basis, it concluded that the debt and deficit criteria are considered as currently complied with. Given the rising debt-to-GDP ratio, swift adoption and implementation of structural reforms is important to improve fiscal sustainability.

The Commission has also adopted a Communication on the "Assessment of Action taken by the UK" which concludes that the UK is projected to be compliant with the recommended headline deficit targets and the underlying improvements in the structural balance over both 2015-16 and 2016-17 financial years. The Commission therefore considers that the UK has taken effective action in line with the Council recommendation of June 2015.

Next steps

In the coming weeks, the Commission will publish:

-      the next Annual Growth Survey (AGS), setting out the economic policy priorities for the EU as a whole for the coming 12-18 months;

-      the Alert Mechanism Report, stating for which Member States in-depth reviews will be carried out over the coming months to assess the existence and/or seriousness of macroeconomic imbalances;

-      the draft Joint Employment Report;

-      a set of recommendations for euro area Member States as part of the revamped European Semester;

-      Staff working documents outlining the investment environment in each Member State.

The Eurogroup will discuss the Commission's Opinions on the Draft Budgetary Plans on 23 November. The Commission is also ready to present its Opinion to the parliament of the Member State concerned and/or to the European Parliament if invited to do so.

In line with the common budgetary timeline introduced by the "Two Pack", budgets have to be adopted by national parliaments by 31 December each year.

The Economic and Financial Committee of EU finance ministry delegates will provide its opinion on the Article 126 (3) reports for Bulgaria, Denmark and Finland, within two weeks.

The Commission will assess compliance with the requirements under the Stability and Growth Pact for all Member States on an ongoing basis.

See also:

Memo: Commission Opinions on the 2016 Draft Budgetary Plans

Press release: European Commission adopts Opinion on Spain's 2016 Draft Budgetary Plan

Timeline: The Evolution of EU Economic Governance in Historical Context

EU economic governance

Press Release: Five Presidents' Report" sets out plan for strengthening Europe's Economic and Monetary Union from 1 July 2015

IP/15/6067

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