BRUSSELS (Reuters) – The European Commission is likely to propose on Monday keeping EU curbs on government borrowing suspended in 2023 amid great economic uncertainty and a sharp slowdown in growth caused by Russia’s invasion of Ukraine, officials said.
The European Union’s budget rules, the Stability and Growth Pact, were set up to protect the value of the euro. They were suspended at the start of the pandemic in 2020 to give governments room to fight the economic fallout of COVID-19.
They were to be reinstated in 2023, but new risks to the economy from the war in Ukraine, a fresh spike in energy and food prices and the impact on consumer and business confidence will make the Commission reassess that.
“The conditions to maintain the general escape clause in 2023 and to deactivate it as of 2024 are met,” the Commission is to say in its communication on Monday, officials said.
The Commission forecast last Monday that as a result of the war in Ukraine, euro zone economic growth in 2022 will be 2.7% rather than the 4.0% forecast in February.
Much of the growth this year will be due to carry-over effects from 2021, pointing to new fragility of the EU economy caused by the Ukraine war.
The Commission said already in March that it would not apply in 2023 one of the most disputed rules in the suspended framework under which governments must cut debt every year by 1/20th of the excess above 60% of GDP.
Countries such as Italy, with debt of 160% of GDP, or Greece with more than 200%, would simply not be able to comply.
Euro zone finance ministers also agreed in March to tighten fiscal policy a little next year after three years of pumping billions into the economy due to the pandemic, but also to be ready with more cash should the war in Ukraine make it necessary.
(Reporting by Jan Strupczewski; Editing by Kirsten Donovan)
