The European Commission has today adopted Opinions on Spain and Lithuania's updated Draft Budgetary Plans for 2017, which were submitted last December following the formation of new governments in both countries. This assessment is based on an update of the Commission 2016 autumn forecast, carried out only for these two Member States.
Spain is expected to fall slightly short of meeting the 3.1% headline deficit target for 2017 set by the Council last August. However, the country is projected to deliver the required structural fiscal effort both in 2017 and, in cumulative terms, over 2016 and 2017. Overall, the Commission considers Spain's Draft Budgetary Plan to be broadly compliant with the provisions of the Stability and Growth Pact. It invites the authorities to stand ready to take further measures should fiscal developments indicate a heightened risk of not fulfilling the Council's requirements.
The Commission is also of the opinion that Spain has made limited progress in responding to specific Council requirements to strengthen its fiscal framework and its public procurement policy framework. Spain is therefore invited to accelerate this progress.
According to the updated autumn forecast, Lithuania's general government deficit in 2017 is expected to be 0.8% of GDP. Based on the updated Draft Budgetary Plan for 2017, there could be a risk of a significant deviation from the medium-term budgetary objective (MTO) this year. However, Lithuania has requested additional flexibility for up to 0.5% of GDP, as provided for by the Stability and Growth Pact, to implement major structural reforms planned for the labour market and pension system. At present, it appears that Lithuania has sufficient fiscal space to benefit from such a temporary deviation in 2017; a complete assessment of Lithuania's eligibility for this flexibility will be made in May 2017, in the context of the assessment of its 2017 Stability Programme. Overall, the Commission considers Lithuania's Draft Budgetary Plan to be at risk of non-compliance with the provisions of the Stability and Growth Pact. It invites the authorities to take the necessary measures within the national budgetary process to ensure that the 2017 budget will be compliant with the Pact.
The Commission is also of the opinion that Lithuania has made limited progress in responding to the specific Council recommendations related to fiscal structural reforms. Lithuania is therefore invited to accelerate this progress.
Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union, said: “We welcome that both the Spanish and Lithuanian Governments submitted updated Draft Budgetary Plans for 2017 as soon as they took office. Spain has recorded good economic performance and we invite the Spanish authorities to continue to correct their excessive budget deficit and implement key structural reforms. Lithuania's budget deficit and debt are well below the required targets of 3% and 60% of GDP respectively. Its draft budgetary plan is currently seen as at risk of non-compliance with the rules of the Stability and Growth Pact, but this would no longer be the case if the flexibility requested by Lithuania is granted this spring.”
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: “With these opinions on the Spanish and Lithuanian 2017 draft budgetary plans, the Commission is once again applying the Pact with rigour and intelligence. We are vigilant that Member States are delivering upon their fiscal commitments to deliver sustainable growth within our monetary union. The Commission trusts that the Spanish 2017 budget will be adopted and fully implemented soon. We will confirm the flexibility clause for Lithuanian structural reforms in the spring.”
Lithuania is subject to the preventive arm of the Stability and Growth Pact. The Council recommended in July 2016 that Lithuania ensure that the deviation from the MTO is limited to the allowance linked to the systemic pension reform in 2016 and in 2017.
The updated Draft Budgetary Plan was submitted by the new government that took office on 13 December following the general elections on 9 and 23 October. It updates the no-policy-change Draft Budgetary Plan that was submitted by the outgoing Lithuanian government on 17 October 2016.
Spain is currently subject to the corrective arm of the Stability and Growth Pact. The Council opened the Excessive Deficit Procedure for Spain on 27 April 2009. On 8 August 2016, the Council gave notice to Spain under Article 126(9) of the Treaty to correct its excessive deficit by 2018. To that end, Spain is required to reduce the general government deficit to 4.6% of GDP in 2016, to 3.1% of GDP in 2017 and to 2.2% of GDP in 2018.
The updated Draft Budgetary Plan for 2017 was submitted by the government that took office on 4 November 2016 following the general elections of 26 June 2016. It updates the Draft Budgetary Plan for 2017 that was submitted on 14 October 2016, which, given the caretaker nature of the government in place at the time of its submission, only provided projections on the basis of unchanged policies.
Normally, under the EU's rules on fiscal policy coordination (the so-called Two-Pack), euro area Member States not under economic adjustment programmes submit their Draft Budgetary Plans to the Commission by 15 October. The Commission adopts its Opinions on the Member States' plans by the end of November.
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