In fact, the EU rules on debt and deficits should come back into force next year as the economy has recovered. Because of the war in Ukraine, everything is different.
The strict debt requirements in the European Union are to remain suspended for another year in view of the Ukraine crisis. The EU Commission proposes that the so-called Stability and Growth Pact should not be fully reinstated until 2024.
According to the Brussels authorities, the reason for this is high uncertainty due to the war in Ukraine, high energy prices and bottlenecks in the supply chains. “We are far from economic normality,” says Economic Commissioner Paolo Gentiloni.
Countries should invest cautiously
In its annual economic policy recommendations, the EU Commission advises countries to invest in the energy transition and digitization. At the same time, they should control their further spending, especially countries with high debts like Italy. “We’re not proposing a return to unlimited spending,” says Gentiloni. The aim is to move from universal support during the pandemic to more targeted measures.
The debt and deficit rules were suspended during the Corona crisis and should actually apply again from 2023. The EU Commission’s proposal will now be presented to the EU countries. After the summer, the authority also wants to present concrete proposals for a reform of the Stability and Growth Pact, which could then come into force in the course of the coming year.
The Stability and Growth Pact stipulates that EU countries should not borrow more than 60 percent of economic output. Budget deficits are to be capped at 3 percent of gross domestic product (GDP). Many countries exceed these limits, mainly because they had to take on large debts to support the economy during the corona pandemic.
Germany: Investments slowed down
Germany also exceeds these figures, with a debt of 69 percent of GDP last year and a deficit of 3.7 percent, according to a country-by-country report by the commission. As in previous years, Germany’s high current account surplus – meaning that, among other things, more is exported than imported – and a low investment rate were also criticized. This creates an imbalance compared to other countries. According to the Commission, more private and public funds are needed for the energy transition and digitization. Among other things, bureaucratic hurdles held back investments.
The Commission also warned that the German economy was particularly affected by the war in Ukraine – for example because of its dependence on Russian gas and other raw materials from Russia and Ukraine. “Aggravating supply chain bottlenecks and rising costs and prices are slowing economic growth,” the report said. Germany must reduce its dependence on fossil fuels.
Debt ratio falls by three percent
Overall, the EU Commission recently assessed the development of government budgets as positive. The average debt ratio will fall to 87 percent this year, compared to 90 percent last year, according to the agency’s spring forecast. The average deficits are expected to drop from 4.7 percent to 3.6 percent of economic output. However, the EU Commission had to drastically adjust its growth forecast because of the war in Ukraine – from 4 to 2.7 percent for this year.
Source: Stern
Jane Stock is a technology author, who has written for 24 Hours World. She writes about the latest in technology news and trends, and is always on the lookout for new and innovative ways to improve his audience’s experience.
