Commission: Estonia's budget broadly compliant with Stability, Growth Pact

The 2020 state budget bill.
The 2020 state budget bill. Source: ERR

The European Commission has presented its opinions on euro area member states' 2020 draft budgetary plans, and for the first time since 2002, no euro area member state is under the excessive deficit procedure. The Commission also noted that Estonia's budgetary plan is broadly compliant with the Stability and Growth Pact (SGP).

According to the spring country-specific recommendations for promoting economic growth, the Commission believed that Estonia risks significantly deviating from the commonly agreed adjustment matrix of requirements under the SGP. According to its fall opinion, however, Estonia's draft budgetary plan is broadly compliant with the pact.

Nevertheless, the Commission believes that next year's budgetary plan may result in a slight deviation from the set adjustment path in order to fulfill the budget goal.

The Commission estimates that Estonia's structural budget deficit is to decline from 1.6 percent of  GDP in 2019 to 0.9 percent of GDP in 2020. While the improvement in the structural budgetary position is in line with requirements, there is a risk of a slight deviation from the target in 2020 in relation to fulfilling the expenditure target.

The euro area debt-to-GDP ratio is expected to continue its declining path of recent years and fall from about 86 percent in 2019 to approximately 85 percent in 2020. This is happening against the backdrop of a weakening European and world economy, the Commission said.

"With mounting risks weighing on Europe's economic growth prospects, it is reassuring to see euro area countries like Germany and the Netherlands using fiscal space to support investment," said European Commission Vice-President for the Euro and Social Dialogue Valdis Dombrovskis. "However, there is scope for them to do more. On the other hand, member states with very high levels of debt — such as Belgium, France, Italy and Spain — should take advantage of the lower interest expenditure to reduce their debt. It should be their priority."

Nine countries' plans SGP compliant

Following the recent fall 2019 economic growth forecast and consultations with member states, the Commission has adopted its opinions on the draft budgetary plans of all euro area countries. It has found that no draft budgetary plan for 2020 shows particularly serious non-compliance with SGP requirements. Nine member states' plans are compliant with the SGP in 2020; two member states are broadly compliant, and for eight member states, their plans pose a risk of non-compliance with the SGP next year.

The draft budgetary plans of Germany, Ireland, Greece, Cyprus, Lithuania, Luxembourg, Malta, the Netherlands and Austria were found to be compliant with the SGP.

The draft budgetary plans of Estonia and Latvia, meanwhile, were found to be broadly compliant with the SGP in 2020. The implementation of the draft budgetary plans may result in some deviation from the country's medium-term budgetary objective for Latvia and from the adjustment path toward this objective in the case of Estonia.

For Belgium, Spain, France, Italy, Portugal, Slovenia, Slovakia and Finland, the draft budgetary plans pose a risk of non-compliance with the SGP in 2020. The implementation of the plans of these member states may result in significant deviation from the adjustment paths toward the respective medium-term budgetary objective. In the cases of Belgium, Spain, France and Italy, non-compliance with the debt reduction benchmark is also projected.

Overall, between 2019 and 2020, the number of member states at or above their medium-term budgetary objectives is estimated to increase from six to nine. The Commission projects the euro area aggregate structural deficit to increase by 0.2 percent of potential GDP in 2020 (to -1.1 percent), thus showing a broadly neutral fiscal stance.


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Editor: Aili Vahtla

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