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Wait Before Toasting

July 4, 2013 9 comments

Just a quick note on yesterday’s announcement by the Commission that virtuous countries will be able, in 2013 and 2014, to run deficits and to implement public investment projects.
Faced with an excessive enthusiasm,  Commissioner Rehn quickly framed this new approach within very precise limits, that are worth transcribing:

The Commission will consider allowing temporary deviations from the structural deficit path towards the Medium-Term Objective (MTO) set in the country specific recommendations, or the MTO for Member States that have reached it, provided that:

(1) the economic growth of the Member State  remains negative or well below its potential

(2) the deviation does not lead to a breach of the 3% of GDP deficit ceiling, and the public debt rule is respected; and

(3) the deviation is linked to the national expenditure on projects co-funded by the EU under the Structural and Cohesion policy, Trans-European Networks (TEN) and Connecting Europe Facility (CEF) with positive, direct and verifiable long-term budgetary effect.
This application of the provisions of the SGP concerning temporary deviations from the MTO or the adjustment path towards it is related to the current economic conditions of large negative output gap. Once these temporary conditions are no longer in place and the Member State is forecast to return to positive growth, thus approaching its potential, any deviation as the above must be compensated so that the time path towards the MTO is not affected.

For once, the Commission is not vague about what is allowed and what is not, and the result is that this announcement will turn out to be nothing more than a well conceived Public Relations operation. Allow me to attach some numbers to the Commission proposal.
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