The European Commission warned Italy, France, Portugal and Belgium that their 2018 draft budget plans posed risks to meeting EU debt and deficit reduction targets and asked Spain for an updated budget draft that contains more information.
In letters addressed to each of the five governments, the Commission pointed out that the reduction in their structural deficits — the budget balance that strips out business cycle swings in revenue and expenditure and one-off items — fell short of what EU rules required.
The letters are part of the EU’s budgetary rules, which give the EU executive arm the right to check if draft national budgets are constructed in line with EU laws that put limits on budget deficit and debt.
The Commission said France, which is to bring its headline budget deficit down this year to below the EU ceiling of 3 percent of GDP for the first time since 2007, was cutting it close by aiming for a gap of 2.9 percent, rather than the agreed 2.8 percent.
“The Commission’s preliminary analysis indicates that the correction of the excessive deficit and its sustainability are always subject to risk,” it said in the letter to French Finance Minister Bruno Le Maire.
The letter said France was planning a cut in the structural deficit next year of “marginally greater than zero”, while the required cut was 0.6 percent of GDP. Also, public spending would grow faster than allowed by EU rules and public debt would not fall as required.
“There is a risk of significant deviation from the effort required in 2018. We would therefore like to receive further information on the structural effort envisaged in the draft budget,” the Commission said.
The French Finance Ministry said the differences with the Commission’s view were small and that Paris would address the concerns quickly. It said it expected to get out of the EU’s budget disciplinary procedure for those whose headline deficits exceed 3 percent of GDP “in the coming months”.
The Commission said Italy’s draft budget for next year assumed a structural deficit reduction of 0.3 percent of GDP, only half of what was required. And after the Commission checked the Italian calculations, the reduction turned out to be even smaller, 0.2 percent.
Planned government spending next year, an election year in Italy, was above EU limits and the structural deficit in 2017 will deteriorate rather than improve by the required 0.6 percent of GDP, the Commission said.
It also noted that the draft budget suggested Italy had no intention of public debt reduction targets set by EU rules next year. EU law says that debt must fall annually by 1/20 of the difference between 60 percent of GDP and the actual level.
“We would welcome your views by 31 October 2017, close of business, to allow the Commission to take these into account in its further analysis,” the Commission said, setting the same deadline as for the other countries except Spain.
BELGIUM, PORTUGAL, SPAIN
Belgium’s planned structural deficit reduction of 0.3 percent of GDP was also only half of what was required. Government spending is growing faster than it should and debt reduction would fall short of the agreed target.
“We would thus welcome further information on the precise composition of the structural effort envisaged… for the different levels of government,” the Commission said asking also for more information on the effects of a planned reform of corporate income tax.
Portugal’s planned structural deficit cut of 0.5 percent was in fact 0.4 percent after Commission recalculations. That was below the required 0.6 percent and government spending was planned to grow more than recommended.
Spain was planning a headline deficit next year of 2.3 percent, which was 0.1 point higher than the target set by EU finance ministers, the Commission said. In addition, a structural deficit cut of 0.5 percent was unlikely, it said.
Spain’s 2018 draft sent to the Commission was on a no-policy-change basis and Madrid promised to send an updated version of the draft to the Commision as soon as it goes to the Spanish parliament.
“Although we understand that the presentation of the budget is lagging behind its usual schedule, we wish to highlight the importance of a timely submission of a fully-fledged Draft Budgetary Plan (DBP),” the Commission said.
“We therefore invite the Spanish authorities to submit, as soon as possible, an updated DBP to the Commission and the Eurogroup,” it said.
Source: Reuters (By Jan Strupczewski, Additional reporting by Leigh Thomas in Paris; Reporting By Jan Strupczewski; editing by Robert-Jan Bartunek, Larry King)