Good morning everyone,
I would like to start by expressing my sincere condolences to the families and friends of the victims of the horrendous terrorist attacks in Paris. We stand united with France.
Today, we are presenting the European Commission's Opinions on the draft budgetary plans of euro area Member States. This exercise is a major novelty introduced during the crisis to strengthen the coordination of fiscal policy within the euro area. This is the third year that Member States present draft budgetary plans to the European Commission. This assessment increases transparency in national budgetary processes. It enables national parliaments to be informed not only about the budget plan of their own country, but also to be able to compare it with others.
The European Semester gives a global overview of the economic policies that are implemented by the Member States. As a result, Member States increasingly see their macroeconomic and fiscal developments as a common concern. And countries discuss each other's budgetary policies. There is a special Eurogroup scheduled for 23 November to debate the opinions we have just adopted.
As for the draft budget plans, the role of the Commission is to assess whether these plans comply with our commonly-agreed fiscal rules. Concretely, countries under the excessive deficit procedure with deficits above 3% of GDP need to comply with Council recommendations. Countries in the preventive arm of the Stability and Growth Pact need to follow the adjustment path towards their medium-term budgetary objectives and to keep their debt levels under control.
In general, both the growth and budgetary projections in the draft plans presented by Member States are close to those of our Autumn Economic Forecast. Real GDP growth in the Euro area is projected to strengthen from 1.6% this year to 1.8% in 2016. The Euro area continues to recover, but at a moderate pace. This modest recovery is being helped by monetary stimulus and low commodity prices, which are temporary factors. The recovery is therefore still fragile and not strong enough to create new jobs as quickly as we would like.
At the same time, external risks have increased, such as the slowdown in emerging markets, geopolitical instabilityand security concerns. In the context of this modest recovery, budget deficits continue to decline. In 2009, at the height of the crisis, the budget deficit in the euro area stood at an average 6.3% of GDP. It has been gradually declining since then. It was 2.4% of GDP in 2014. It is expected to fall to 1.9% of GDP this year and is set to decline to 1.7% of GDP in 2016.
For the first time since the beginning of the crisis, public debt starts to decline. After having peaked in 2014, it will decline to 91% of GDP this year and to 90% of GDP in 2016. However, public debt at these levels, around 90% of GDP, still makes our economies vulnerable. It is worth remembering that, in the Maastricht criteria, public debt below 60% of GDP is seen as a safe level.
Overall, in recent years, there has been an improvement in how Member States comply with the rules of the Stability and Growth Pact. The number of countries in the excessive deficit procedure continues to decline. Next year will begin with five euro area countries in the excessive deficit procedure, down from seven countries a year before. This is encouraging, although we are still far from full compliance.
The picture varies substantially from country to country. For many countries, high public debt is a major concern. Debt levels in individual Member States vary from 131% of GDP in Italy to below 10% of GDP in Estonia. Together with the country-specific analysis, the Commission gives an overview of the budgetary situation and fiscal stance in the euro area as a whole. Our assessment points to the continuation of a broadly neutral fiscal stance. In other words, the Draft Budgetary Plans do not add or subtract stimulus to the economy. This appears to be appropriate when looking at fiscal sustainability needs and cyclical conditions. Regarding the aggregate fiscal stance of the Euro area, some Member States should do more to be in line with the Stability and Growth Pact; others could afford an increase in public investment.
As regards the Stability and Growth Pact, in the context of the refugee crisis, Austria, Italy, Belgium, Germany and Finland have already outlined the additional costs due to the unprecedented refugee crisis in their Draft Budgetary Plans. Other Member States may be affected. The Stability and Growth Pact includes a provision for unusual events outside government control. The Commission is willing to use this provision. We will monitor the situation closely.
On the basis of further data provided by the authorities concerned, we will come back to this in the spring when we will again assess the budgetary situation for 2015 and 2016. We will do the ex-post analysis of the costs and use the incremental approach – meaning that we will take into account additional expenditure compared with previous years, when assessing compliance with the Stability and Growth Pact rules.
To conclude, there is ground for cautious optimism. The euro area is continuing to recover, budget deficits continue to decline and debt levels have started to decline as well. At the same time, the situation among Member States remains uneven and our call to pursue responsible budgetary policies remains fully valid.
I now pass the floor to Pierre will give more detail on our country assessments.