EU ambassadors did not approve the fifth package of sanctions against the Russian Federation the discussion will continue on Thursday
The European Commission made official today, Monday 23 May, the decision to suspend the budget rules for another year, in light of the uncertainty that characterizes the European economy, as anticipated by the Sole 24 Ore on 15 May last. On the occasion, however, Brussels urged member countries to have a “prudent” policy and announced new assessments on the trend of public finances in the autumn of 2022 and then in the spring of 2023. The evolution of public spending in Italy.
“Our common priorities are investments and reforms. This is reflected in the country recommendations presented today, which focus on the implementation of national recovery and resilience plans (NRPs) and the energy transition. Fiscal policies should continue the transition from universal support provided during the pandemic to more targeted measures, ”Economic Affairs Commissioner Paolo Gentiloni explained here in Brussels.
According to the former Italian prime minister, the economic situation “has not yet normalized”. In this sense, “the increase in uncertainty and the strong downside risks to the economic outlook in the context of the war in Ukraine, as well as the unprecedented increases in energy prices and the continuing disruption of the supply chain, justify” the choice of extending until the end of 2023 the suspension of the budget rules decided in 2020, at the outbreak of the pandemic.
In this context, Brussels has confirmed that it does not want to open excessive deficit procedures (the choice had already emerged in recent months given the health emergency). However, he warned that he would assess the budgetary situation of member countries next autumn. Subsequently, it reserves the right to open excessive deficit procedures in 2023, “based on data from 2022, and taking particular account of compliance with the country recommendations”.
On the Italian front, the latter urged the Italian government to adopt a “prudent” budgetary policy, in particular, “by limiting the growth of current expenditure financed at the national level to below the growth of potential output in the medium term”. More generally, Brussels emphasizes the need to put the NRP into practice and to reform the tax system “to reduce taxes on labor” and “to align cadastral values with current market values”.
In this regard, Commissioner Gentiloni specified that these words do not reflect “a request for a tax increase” on houses, despite the public debate in Italy. For his part, again today the vice-president of the Commission Valdis Dombrovskis recalled the importance of avoiding a spiral between prices and wages in a context of high inflation, and reiterated that the suspension of the budget rules “does not mean a free all”.
Furthermore, in the documentation published today, the EU executive defines the growth in primary current expenditure financed at the national level as “significant”, such as to provide an expansionary contribution of 1.3 percentage points to the overall budget structure in 2022. “Therefore, based on the Commission’s current estimates, Italy does not sufficiently limit the growth of net current expenditure funded nationally in 2022,” warns Brussels.
The suspension of the budget rules is associated with particular monitoring of the trend of the public accounts which could lead to the opening of an excessive deficit procedure in the countries most in difficulty. Italy is one of these, especially since Brussels has always explained today that it believes that the country remains marked by a serious macroeconomic imbalance, due to a very high public debt and the increasingly weak competitiveness of the economy.
The choice to extend the suspension of the Stability Pact, but at the same time reserve, the right to open excessive deficit procedures reflects the desire to find a balance between the different souls of the Commission and the Council. Over the weekend, German Finance Minister Christian Lindner told the Financial Times: “The fact that member states are now able to deviate from the Stability and Growth Pact does not mean that they must do so.”
The latest economic forecasts by the European Commission itself show a marked slowdown in growth (see Il Sole 24 Ore of 17 May). In the euro area, the latter is expected to be 2.7% in 2022 and 2.3% in 2023. The February forecasts indicated an expansion of the economy of 4.0 and 2.7% respectively. According to EU forecasts, the Italian economy should grow by 2.4 and 1.9% (previous estimates spoke of +4.1 and + 2.3%).
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