Paolo Gentiloni: “Economic uncertainty has led to an extension of the suspension of fiscal rules.”

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In interviews given to several European media, including opinions, Paolo Gentiloni of the Economic Commission justifies the decision to extend one year to 2024, a general condemnation from Maastricht’s rules. ..

Your prediction is that the EU economy should continue to grow in 2022 and 2023, but you still decide to extend the suspension of fiscal rules. Is it inconsistent?

We are facing one of the biggest downturns mentioned in our economic forecasts. The growth rate for 2022 in February is forecast to be 4%, but it is forecast to be 2.7%. However, much of this growth is related to the dynamics launched last year. Without this statistical effect, this year’s growth rate would be only 0.8%. Adding uncertainty about the duration of the war gives us a good idea of ​​the dangerous situation in which we plunge. We also included it in the latest forecast scenarios that we found to be in the negative territory, excluding the 2021 impact. From all of this, we decided to consider extending the validity of the general condemnation clause.

There should be no connection between the suspension of the rule and the revision of the rule. Once the rules are back, we can find a way to take economic conditions into account in their application anyway.

There are many calls for a return to budget rules. How could you make the decision to extend the outage in this context? And are you sure it will be confirmed by the Member States?

I am confident that the decision is firmly based on our situation. The committee is a joint body. If there is a disagreement, discuss the compromise, find it, and support it together. Good today, and it will be supported by Member States.

You ask member states to be cautious about their budget policy, but what would you do if they weren’t because the rules were suspended?

Despite the suspension of the rules, all steps are available, including macroeconomic imbalances and excessive deficits. Evaluate the situation in autumn and next spring. We will look at the level of public spending on growth, but even if we analyze various figures based on uncertainty, we cannot deny the start of the procedure.

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Therefore, this framework allows both to reassure member states and to take into account anomalies in economic conditions, without saying that unlimited spending is required. Not the same situation as March 2020

Isn’t this decision also a way to gain time to find an agreement on a budget rule revision that seems far from successful?

It is undeniable that economic governance, especially heads of state and government leaders, has not been a top priority in the last three months due to war, rising energy prices and inflation. From this point of view, it is true that we have some time to spare and have decided to propose a draft amendment to the budget rules after the summer. However, there should be no connection between the suspension of the rule and the revision of the rule. Once the rules are back, we can find a way to take economic conditions into account in their application anyway. If we maintain a general escape clause, it constitutes the best framework given the risks, uncertainties, and the transition from universal support to the economy to targeted support. Because. Therefore, this framework allows both to reassure member states and to take into account anomalies in economic conditions, without saying that unlimited spending is required. The situation is not the same as in March 2020.

What should we expect from the Commission’s proposal to revise the budget rules?

Solving the equation is not easy, but there are at least some principles that are recognized as important. We start with a balance between the importance given to realistic debt reduction and economic support and the great investment needs we have. We all agree that we need to simplify the rules while making it easier to implement. Third, given the significant differences in budgetary conditions, we need to work to distinguish between debt reduction trajectories that can allow member states to better allocate them. From this perspective, we can undoubtedly draw inspiration from the experience of the Recovery Fund. This allowed each Member State to jointly define a plan with the Commission. Another challenge is how to encourage broader and more strategic investment in the green. Removing these investments from the deficit calculation is one option, but it’s not the only option. The debate will continue for the next few weeks to months.

The recovery plan is extraordinary, and there is no doubt that it will be permanent. On the other hand, the uncertainty of war and the prospects for Ukraine’s reconstruction can only encourage us to continue pooling our resources to achieve our common goals.

Do you think Member States agree to fund the Repower EU program to end Russia’s dependence on fossil fuels through unsolicited loans from the Recovery Fund? Rather, don’t you need fresh money from a new joint loan?

EU repower is an ambitious plan, at least potentially, based on large amounts of funding. Remember that we have already provided € 20 billion in new funding by liquidating part of the European Carbon Market (ETS) stability reserve. It also opens up the possibility for Member States to use some of the subsidies from the Common Agricultural Policy and Cohesion Policy. This is potentially totaling $ 67 billion. As you pointed out, the remaining loans in the recovery plan, which is currently worth € 220 billion, will be reduced. The Commission asks Member States that are not requesting allocated loans to take their place, and expects many to actually request them, especially in light of rising interest rates. Therefore, we should be more or less an envelope of 100 billion euros. Is that enough? Most of the investment must come from the private sector, but it seems normal for us to discuss new tools.

What exactly are you thinking?

At this time, there are no new suggestions for pipes. But on my part, two things are clear. First, recovery plans are extraordinary and there is no doubt that they will be permanent. On the other hand, the uncertainty of war and the prospects for Ukraine’s reconstruction can only encourage us to continue pooling our resources to achieve our common goals. The need is clear, but the equipment is not. In any case, recovery plans need to bring good results. Otherwise, it would be very difficult to seek new cofinancing.