European Commission opinion on budgets: more coordination needed

The European Commission published its opinions yesterday on national Draft Budgetary Plans (DBP) submitted by 15 October, in compliance with the "Two Pack" legislation, which aims at improving fiscal policy coordination in the euro area. No national budget plan was found in "serious non compliance" with European fiscal rules, but the Commission warns that several member states may deviate from budget trajectories required by the Stability and Growth Pact (SGP). 

It also estimates that the aggregate fiscal stance of the euro area should be broadly neutral in 2016, which it considers to be broadly appropriate. The Commission's assessment lacks ambition on fiscal policy coordination, but this mostly stems from a lack of institutional framework to do so rather than a lack of willingness, and this supports the proposals included in the "Five Presidents Report" to make progress towards a genuine fiscal union.

The European Commission concluded that no member state was found "in particularly serious non-compliance" with the provision of the SGP, but it warned that several countries were falling short, or risked doing so, of what is required in the SGP. This means that no country has been asked to review its DBP before being adopted by the Parliament, but that some of them may eventually experience a fiscal slippage that would lead to deviation from the trajectory towards the so-called Medium-Term Objective (MTO) - ie, a fiscal position consistent with the debt-to-GDP ratio declining towards the 60% limit over the medium term.