EU considers longer borrowing limit hiatus amid Ukraine crisis
Reuters
Published Mar 02, 2022 14:48
By Jan Strupczewski
BRUSSELS (Reuters) - The European Commission will assess in May whether fiscal rules that limit government borrowing should remain suspended in 2023, officials said on Wednesday, as a result of Russia's invasion of Ukraine slowing economic growth in Europe.
The European Union's Stability and Growth Pact was set up to protect the value of the euro, but the rules have been suspended since the start of the pandemic in 2020 to give governments room to fight the economic fallout of COVID-19.
They were to be reinstated in 2023, but new risks from the war in Ukraine, from sanctions on Russia and Russian counter-sanctions, a fresh spike in energy and food prices, swings in financial markets as well as effects on consumer and business confidence will make the Commission reassess that.
"Given the current uncertainty, we will need to reassess the expected (reinstating of the rules) in 2023 on the basis of our spring forecast, which I will present in mid-May," European Economic Commissioner Paolo Gentiloni said.
Whatever the outcome of its assessment, however, the Commission will not apply in 2023 one of the most disputed rules in the suspended framework under which governments must cut debt every year by 1/20th of the excess above 60% of GDP.
Countries such as Italy, with debt of 160% of GDP, or Greece with more than 200%, would simply not be able to comply.
"We will not be applying the one twentieth rule for those countries with a debt ratio above 60% of GDP," Commission Vice President Valdis Dombrovskis said.
For now, the Commission told EU governments they should move to a neutral fiscal stance next year from a supportive stance but be ready to adapt quickly if the Ukraine crisis produces new challenges for the rest of Europe.
It said high debt countries should focus in 2023 on tightening fiscal policy, while low debt ones, like the Baltics, eastern Europe or even Germany, focus more on more investment.
The Commission forecast on Feb 11 that euro zone growth would be slower than earlier expected, reaching only 4.0% in 2022 rather than 4.3%. Gentiloni said that uncertainty was so great it was impossible now to say how much growth would suffer this year with any degree of accuracy.
Get The App
"Uncertainty and risks have increased markedly, which is why our guidance will need to be updated as necessary, at the latest in the spring," Gentiloni said.
Written By: Reuters
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.