DEFICIT DISCIPLINE

E.U. Should Go Easy on Budget Sinners

Slovakian President Andrej Kiska has advised the E.U. to go easier on members with a budget deficit. Source: Reuters
Slovakian President Andrej Kiska has advised the E.U. to go easier on members with a budget deficit.
  • Why it matters

    Why it matters

    Slovakia’s president has spoken out against a strict application of deficit regulations and will oversee the “period of reflection” the European Union has planned following the Brexit vote.

  • Facts

    Facts

    • Since July 1, Slovakia holds the rotating presidency of the European Council, which changes hands every six months.
    • The European Commission can fine countries for exceeding the 3 percent annual budget deficit threshold.
    • The commission this week determined that neither Spain nor Portugal had done enough to achieve agreed-upon objectives for their budget deficits. But they also abstained from any punishments as of yet.
  • Audio

    Audio

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When it comes to national budgets, Slovakia is more of a poster child than a problem child for the euro zone.

By running a deficit of 2.4 percent, the government in Bratislava is very likely to fulfill European Union regulations this year. So the country has nothing to fear from Brussels.

Still, the country’s president, Andrej Kiska, is speaking out against a strict application of deficit regulations. “When the economy needs a boost, we shouldn’t be too strict with its deficit,” Mr. Kiska told Handelsblatt.

“When the economy needs a boost, we shouldn’t be too strict. In good days, we should be making provision for the bad days.”

Andrej Kiska, President, Slovakia

Countries with low growth shouldn’t be pushed into consolidating their budgets, Mr. Kiska said. But that also means that “in good days, we should be making provision for the bad days,” said Mr. Kiska.

Sadly that isn’t the case in all euro-zone countries, he noted.

The words of the former entrepreneur who ran as an independent carries weight: Beginning this month, Slovakia holds the rotating presidency of the European Council, which changes every six months.

That means Bratislava will moderate the “reflection period” that the European Union has prescribed for itself following the exit referendum in Great Britain.

In this process lasting several months, economic and financial policies will also be discussed. And a number of countries are urging a softening of budgetary regulations in the 19 E.U. member states that use the euro currency.

Budget deficit sinners Spain and Portugal could benefit from this. On Thursday, the European Commission refrained from recommending penalties for now, even though the countries failed to meet mandated deficit levels.

But the commission did determine that neither country had done enough to achieve agreed upon objectives for their budget deficits. That set up the possibility that penalties could be levied in the future.

Finance ministers of member states will decide at their meeting next Tuesday on whether to act on the commission’s assessment. That is considered very likely. Then the commission must recommend a penalty, as well as a partial freezing of appropriations from the structural fund within 20 days.

But that doesn’t have to be the last word. The affected countries have 10 days after ministers vote to present how they might still be able to abide by the regulations. The commission can then recommend that finance ministers waive penalties.

The next meeting of finance ministers is set for October 11. If need be, they could also meet beforehand or hold a written vote on the commission’s recommendations.

European Commissioner Pierre Moscovici and Vice President Valdis Dombrovskis expressly praised the efforts Spain and Portugal have taken in reducing their deficits.

The rules of the stability pact must now be “applied intelligently,” said Mr. Moscovici, adding that they don’t intend to punish anyone.

When it comes to Great Britain, Slovakian President Kiska spoke in favor of giving the country time to officially declare its intention to leave the European Union.

“We shouldn’t pressure the British people and politicians too much,” he said. Angry reactions to the referendum are inappropriate, Mr. Kiska said.

At the same time he praised the role of German Chancellor Angela Merkel. She is doing excellent work and has set a course in the right direction, he said.

 

Til Hoppe covers politics for Handelsblatt and Sandra Louven is Handelsblatt’s Madrid correspondent. To contact the authors: louven@handelsblatt.com, hoppe@handelsblatt.com

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