Illustrative image
Photo: John Powell / TOPPHOTO / SCANPIX / LETA
Valdis Dombrovskis, Vice-President of the European Commission; Paolo Gentiloni, European Economic Commissioner, Latvijas Avīze, JSC Latvijas Mediji
–
The news
Do four employees now have to be taken home from work separately if they also spent the whole day together?
1 day
–
The news
The mayor of Vilnius announces: We will not follow the path chosen by Latvia, restricting the vaccinated ones as well
6 hours
–
Stories
“You are very welcome, forgive our stupidity and frivolity… ”: a Latvian reveals a terrible experience of how her husband“ devoured ”a coward in a few days
2 days
–
This is a good time to relaunch the debate on European economic governance, which we had to postpone last year because of the pandemic.
The European Union’s (EU) economy is gradually emerging from the crisis, thanks to strong support for fiscal and monetary policy and a generally successful vaccination campaign. With regard to vaccination, it should be noted that the rate of vaccination varies considerably in the EU Member States, and in Latvia it is significantly below the EU average.
High levels of uncertainty and risks remain, but economic recovery has begun. Economic growth this year could exceed the European Commission’s July forecast of 4.8%, and the unemployment rate has almost returned to pre-crisis levels.
An important achievement of the economic governance framework is that it has helped to ensure fiscally responsible policies in the Member States. For example, the 3% of GDP deficit criterion has become a real reference point for avoiding excessive deficits. The rules also helped to correct current account deficits, which must be remembered as one of the factors that caused the eurozone crisis in early 2010. The existing rules also provide a framework for the coordination of Member States’ economic policies.
At the same time, we also identified some weaknesses: public debt levels remain very high in some countries, pro-cyclical fiscal policies have been pursued in many cases, and deficit corrections have often been achieved through cuts in public investment. Many EU countries also saw low potential growth and persistently low inflation. It must also be acknowledged that the EU’s fiscal rules are very complex, which makes them difficult to see and makes political control more difficult.
These issues have become even more pressing with the crisis caused by the pandemic. But there are also new trends that need to be taken into account.
First, the need for investment has increased significantly. It is estimated that the green and digital transformation of the European economy will require additional private and public investment of around € 650 billion per year by 2030. Green transformation alone requires 520 billion euros a year. The energy and transport sectors will need around € 390 billion a year, which is 50% more investment than before.
The European Economic Recovery and Sustainability Mechanism will go a long way towards meeting these needs: by 2026, it will provide Member States with € 338 billion in grants and up to € 386 billion in loans.
Second, EU Member States have devoted almost 19% of GDP to addressing the health and economic challenges posed by the Covid-19 pandemic. These investments were facilitated by the activation of the general exemption clause of the Stability and Growth Pact. This fiscal support, together with the strong monetary support provided by the European Central Bank, made it possible to overcome the crisis successfully. However, it also increased EU Member States’ budget deficits and public debt. Therefore, the main purpose of the review of these rules is to consider how our fiscal rules can ensure a gradual reduction of public debt relative to GDP.
Third, the Covid-19 crisis has exacerbated pre-existing imbalances. The level of private debt has increased. In some countries, house prices continue to rise sharply and mortgage debt has risen sharply. In those countries whose economies are closely linked to tourism, the current account deficit has widened. It is clear that the pandemic will continue to affect the economy and new risks may arise.
We invite you to express your views and make your suggestions in this debate before the end of this year. In the first quarter of next year, the European Commission will issue guidelines on fiscal policy for the next period.
Themes
–
