The European Commission (EC) assessed on Tuesday that there is a risk that the draft budget plans of Croatia and three other EU members will not be in accordance with the recommendations of the Council of the EU due to the rapid growth of net nationally financed primary expenditures and the fact that they have not begun to gradually reduce support measures introduced due to high energy prices.
On Tuesday, the European Commission presented the autumn package of the European Semester, which starts the annual cycle of economic management coordination in the EU.
The package includes a series of documents: the Annual Growth Survey, which provides EU member governments with policy guidance for the following year, the Alert Mechanism Report, which indicates possible economic imbalances in member states and triggers the annual Macroeconomic Imbalance Procedure, the Joint Employment Report , Recommendations for the euro area and opinion on the draft budgetary plans for the euro area countries.
In the assessment of the budget plans, the EC called on Croatia, Belgium, Finland and France to take the necessary measures to comply with the Council’s recommendations.
“Croatia is a country where we really discovered that the growth of net nationally financed primary expenditures is indeed above what was recommended and that these expenditures are growing quite quickly,” said the EC official.
He added that the overall fiscal situation in Croatia is not so bad and that it is positive that public investments, supported by the Recovery and Resilience Mechanism, are growing quite quickly.
“But, regardless, I think it is important that deviations from the fiscal targets do not further worsen the situation,” said the source.
Cautious fiscal policy
According to the recommendations of the EU Council from July this year, the euro area countries are required to lead a prudent fiscal policy, especially by limiting the nominal growth of nationally financed net primary expenditures in the following year.
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According to these recommendations, all member states should maintain nationally financed public investments and ensure effective withdrawal of funds from the Mechanism for Recovery and Resilience and from other European funds. Also according to these recommendations, all members should as soon as possible withdraw the support measures introduced in the face of high energy prices.
In its assessment, the EC states that it has not determined that any draft budget plan of some member states poses a serious risk of non-compliance with the Stability and Growth Pact.
“The Commission recommended that the member states respect the maximum growth rate of net primary expenditure in 2024. It considers that there is a risk that Belgium, Finland, France and Croatia are not in line with this recommendation, while Italy, Luxembourg, Latvia, the Netherlands and Slovakia are not fully in line in accordance with this recommendation”.
According to the recommendations of the Council, member states should phase out non-selective support measures in a timely manner to solve the energy crisis and use the resulting savings to reduce the deficit. At the same time, they should ensure that in the event of a renewed increase in the prices of energy from renewable sources, well-targeted measures are introduced to protect vulnerable households and businesses.
The EC estimates that most countries will abolish energy measures this year and next, but that “this is not the case in Croatia, France, Luxembourg, Malta, Germany and Portugal, for which it is predicted that significant measures will still be in force in 2024.” .
As for the recommendation to use the savings resulting from giving up subsidies to reduce the budget deficit, Austria, Belgium, Croatia, Germany, Italy, Latvia, Luxembourg, the Netherlands and Slovakia risk not being in line with this part of the Council’s recommendation.