Remedial measures

To tackle the economic crisis, EU member countries have invested huge financial resources over the last year, jeopardizing the sustainability of state budgets. That’s why, according to the European Commission, “remedial measures” need to be taken, seeking to balance anti-recession measures with rigour in public finances.State budgets under strain as a result of the crisis. “The return to the long-term sustainability of public finances is one of the fundamental components of our exit strategy”, said Joaquín Almunia, EU Commissioner for Economic and Monetary Affairs, in presenting the Report on Sustainability 2009 on 14 October. The governments of the 27, just like economists and the mass media, have immediately focused on the judgements expressed by the Commission on the individual countries: it turns out, for example, that half of EU member states have a ratio between deficit and gross domestic product higher than 6%, i.e. a level double that specified in the Stability and Growth Pact. Long-term sustainability under threat. Various states are in difficulty in correcting their public finances, especially those that have invested most massively in curbing the effects of the crisis: they include Germany, the Netherlands, the UK, Greece, France, Ireland, and Spain. From the Report it emerges that in 2007, i.e. before the recession began, many member countries “had achieved their best aggregate budgetary position in thirty years, with a deficit of 0.8% for the EU as a whole”. This has permitted “many states the margin of manoeuvre they need to help their economies during the crisis”. At the present time, however, “a deterioration of public finances” is being registered. This, “in addition to the predicted demographic developments due to the ageing of the population, makes the long-term sustainability of public finances an urgent challenge”.Supporting recovery and preparing for the post-crisis. In essence, the Commission’s message is expressed as follows by Almunia: “We must continue to support the recovery, but in a context of gravely deteriorated public finances, measures to build confidence and revive demand can only be successful if perceived by markets and public opinion as temporary and compatible with long-term sustainability”. The Spanish Commissioner calls for “clear strategies for the post-crisis period”, thanks to which “we will be able to reinforce the effectiveness of short-term measures of support and create the conditions for lasting future economic growth”. The Report is explicit: financial sustainability is a problem for all EU States, “albeit in very different degrees from one country to another”. Work, pensionable age, education. Clear guidelines for action are not lacking in the Report at this point. The Executive indicates a “three-pronged strategy”: reduction of state deficits and debt, growth of the employment rate and reform of systems of social protection. The Commission specifies among other things: “We must at all costs prevent unemployment from becoming endemic. It is therefore vital to pursue the policy of ‘flexisecurity’ and other structural reforms that have helped to increase employment rates in the past”. The “effective pensionable age also needs to be raised in line with the rise in life expectancy”. In this case Brussels recognizes that several countries are already examining measures of this kind. The Report issued by the Commission further emphasizes “the need to evaluate the introduction of reforms of the healthcare system”, while “an improvement of the quality of public finances is indispensable to reduce non-productive expenditures and allocate more resources to education, research and other political, social and environmental objectives in the field of healthcare”. Fiscal pressure, distorting effects. Any improvement of state budgets through an increase in revenues, for example through greater fiscal pressure, “ought to take into account the effects of such measures in terms of incentive, efficiency and competitiveness and concentrate on measures having a lesser distorting effect”. The Commission also makes the point that “budgetary expansion implemented to curb the recession is not incompatible with long-term sustainability”. The measures to be taken can therefore go in a variety of directions: the important thing is to act. “Exit strategies at the fiscal level need to be aimed at achieving ambitious and realistic mid-term objectives”, continues the document, and “must be implemented in a coordinated manner as soon as the recovery is consolidated”, though obviously taking account of the specific situations of the individual countries.