The European Commission has finally set out its views on the EU’s economic and social priorities for 2017, based on Juncker’s State of the Union document for 2016 and on the latest economic data. President Juncker underlined that the coming year will be “decisive for Europe to manage its economic and social turnaround.” He also stressed that every Member State should play its part: “those that can afford it need to invest more, while those which have less fiscal space should pursue reforms and growth-friendly fiscal consolidation.”
According to the Commission’s data, Europe’s GDP is higher than before the crisis, while unemployment is decreasing and investments are growing. This being said, the social impact of the crisis, with high levels of public and private debt and the share of non-performing loans, is still influencing everydays life.
Member States are thus called to strenghen their efforts to boosting investments, pursuing structural reforms and ensuring responsible fiscal policies; bearing in mind the principle of a more inclusive growth.
In the “Euro area”, there is a clear risk of “low growth, low inflation”, making a true support to the monetary policy of the European Central Bank an unavoidable tool for growth.
The Annual Growth Survey is thus published together with a Communication on the euro area’s fiscal stance, a recommendation on the economic policy of the area and a detailed analysis of economic, labour market and social conditions.
President Juncker had already announced the intention to promote
“a positive fiscal stance for the euro area”
supporting the monetary policy of the ECB; the recent Position recalls that both monetary and fiscal policies must play a key role in macroeconomic stabilisation. However, if in the euro area monetary policy has been conceived and designed as a single instrument, the absence of a centralised budget function, makes the area’s fiscal policy the simple result of the aggregation of 19 national policies. Given the need to sustain the recovery, the Commission also stressed the need for a more positive fiscal stance, suggesting an expansionary, policy and an attention to the types of expenditure and/or taxes behind it.
According to the Commission, the euro area shall adopt a more collective approach, which should take into account the national situations, meaning that
Member States which are over-achieving their fiscal objectives shall use their fiscal space to support domestic demand and quality investments, while those that need further fiscal adjustments shall comply with the requirements of the Stability and Growth Pact.
In line with the Communication on the euro area fiscal stance, the Commission recommends, for the euro area, a fiscal expansion of up to 0.5% of GDP in 2017, to contribute to a balanced policy mix, supporting reforms and strengthening the recovery. The recommendation also highlights the need to pursue structural reforms and improve the quality of public finances.
The Alert Mechanism Report is an integral tool of the project, aiming to prevent imbalances that may hinder the functioning of Member States’ economies and to prompt the right policy responses (so-called Macroeconomic Imbalances Procedure – MIP). The AMR identifies 13 EU countries(Bulgaria, Croatia, Cyprus, Finland, France, Germany, Ireland, Italy, the Netherlands, Portugal, Slovenia, Spain and Sweden) that will face an In-Depth Review.
At the aggregate level, Commission’s data suggest that the euro area has the world’s largest current account surplus, expected to rise more this year and confirm that the recovery is increasingly job-intensive, also thanks to recent structural reforms in a number of Member States. Eight million new jobs have been created since 2013, out of which almost 5 million have come since the beginning of the mandate of this Commission. The EU unemployment rate kept falling and stood at 8.5% in September 2016 (10% in the euro area), reaching its lowest level since 2009 (since 2011 in the euro area). At the same time, the employment rate in the age group 20-64 is above that observed in 2008 for the first time, at 71.1% (second quarter of 2016). This means that the 75% employment rate target set by the Europe 2020 strategy for 2020 could be within reach, if the current trend continues. Despite first signals of convergence among Member States, employment and social outcomes continue to vary significantly across countries. Unemployment levels as well as poverty remain far too high in many regions of Europe. High inequality levels reduce economic output and the potential for sustainable growth.
The Commission has also completed its assessment of whether the euro area Member States’ Draft Budgetary Plans (DBP) for 2017 comply with the provisions of the Stability and Growth Pact. Regarding the fifteen countries in the preventive arm of the SGP:
- Germany, Estonia, Luxembourg, Slovakia and the Netherlands are found to be compliant with the requirements for 2017 under the SGP.
- Ireland, Latvia, Malta, Austria are found to be broadly compliant with the requirements for 2017 under the SGP. For these countries, the plans might result in some deviation from the adjustment paths towards each country’s medium-term budgetary objective.
- Belgium, Italy, Cyprus, Lithuania, Slovenia, Finland show, on the contrary, a risk of non-compliance. However, the complete assessment of Finland and Lithuania’s possible eligibility for flexibility will take place within the normal European Semester cycle in the context of the assessment of the 2017 Stability Programme.
Regarding the three countries currently in an Excessive Deficit Procedure:
- France’s DBP seems to be broadly compliant with the requirements for 2017;
- Spain’s DBP is at risk of non-compliance ;
- Portugal’s DBP is found to pose a risk of non-compliance, although the projected deviation exceeds the threshold for a significant deviation by a very narrow margin.
The Commission has invited the Eurogroup and the European Council to discuss and endorse the guidance and looks forward to further discussion with the Parliament on the priorities for the EU and euro area, while calling for a close involvement of national Parliaments, as well as of social partners, in the elaboration and implementation of national programmes.