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A criticism frequently made of the EU Commission - by journalists (including this one), industry leaders and politicians - is that its one-size-fits-all regulations ... are too inflexible. But this week the opposite charge - of undue leniency - was brought against the bloc's executive by a panel of fiscal advisors. They claim that the Commission should have sanctioned Spain earlier this year for its excessive budget deficit in 2023, rather than giving it a pass.
The panel has criticised the Commission for allowing a 'new element of discretion' into assessment of member states' economies. But this is precisely what is required in the application of fiscal rules that aren't equally helpful or realistic for all EU members. Indeed, in April this year, the EU Parliament approved a package of changes to the growth and stability pact (GSP) in order to give member states more flexibility, especially as they recover from the pandemic.
According to the GSP, members' budgetary deficits should stay below 3% of GDP to avoid being placed under the excessive debt procedure (EDP). If a country enters the EDP it has to negotiate a stringent fiscal plan with Brussels in order to get the deficit back under 3%, and may also face sanctions. But the SGP was suspended during the pandemic, so that target didn't apply.
After the SGP was reinstated at the beginning of this year, eleven EU members were criticised by the EU Commission for running deficits above the 3% threshold in 2023, including France, Italy, Slovakia, Belgium, Poland and Romania. Poland, in particular, seemed to have a good excuse for posting a deficit of 5.1% of GDP last year - namely, increased defence spending because of Russia's invasion of Ukraine. Yet it was still placed under the EDP. Why, then, did Spain get away with it?
Because, as the Commission stated in a report published at the end of June, it is 'no longer experiencing macroeconomic imbalances'. Unconcerned by the country's 3.6% deficit last year, and convinced that even that breach of the GSP was temporary, Brussels decided that it would be pointless to impose sanctions on Madrid. The EU expects Spain's deficit to hit the 3% target this year and drop below it, to 2.8%, in 2025.
But the extent of EU states' budget deficits in 2023 should be irrelevant, because the SGP was still suspended. What's the point of retroactively punishing a country for failing to adhere to a target that at the time didn't apply? The Commission was right to let Spain off the hook, but it should have treated all other countries with the same degree of leniency, regardless of their macroeconomic situations in 2023. Either 2024 was a blank slate for everyone in the EU or nobody.
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