Spain to present its draft budget for 2015
Spain’s government will present its draft budget for 2015 to the national parliament tomorrow (26 September), as European Union member states finalise their budget plans for the coming year before submitting them for review by the European Commission on 15 October.
Several national governments have been in contact with the Commission in an attempt to establish how much flexibility will be allowed in interpreting the eurozone budget rules. The issue, which is complicated by the imminent arrival of a new college of commissioners, on 1 November, is particularly acute for France, Italy and Spain, the eurozone’s second, third and fourth largest economies, respectively. All are at risk of missing budget targets in one form or another.
Spain is expected to announce plans to cut its deficit by 1.3 percentage points to 4.2% of gross domestic product (GDP), in line with its eurozone budget commitments. This would include a 3.2% cut in public spending. To get there, the Spanish government is not planning any further budget cuts and is relying on increased revenues from economic growth, which it predicts will be 2% in 2015, and a reduction in unemployment costs.
Italy’s government will publish its national economic forecasts for 2015 on 1 October. Matteo Renzi, Italy’s prime minister, is expected to present his 2015 budget shortly before the 15 October deadline. Renzi has said that Italy will remain within the 3% budget deficit foreseen by EU rules, but has suggested that Italy will not meet other targets designed to eliminate Italy’s structural deficit, so that it can reduce its overall debt load. He must decide whether to extend a tax cut given to low-earners prior to the European elections in May.
The French government, which has already admitted it will overshoot budget targets and has ruled out making further cuts, will publish its 2015 budget shortly. It plans to cut public spending by €50 billion and to cut taxes on businesses by some €40bn by 2017.
Manuel Valls, France’s prime minister, was in Germany on Monday (22 September) to meet Angela Merkel, Germany’s chancellor, in a bid to gain her backing for France to be given more time to meets its targets.
France has very little support in its bid to gain additional flexibility, said one EU official. A number of small EU member states used finance ministers meetings on 12 and 13 September to make it clear that they had no appetite to grant France a further exception, stressing that the rules should apply equally to all member states, regardless of their size or importance to the EU economy.
“My sense is that we will start to see a lot more pressure on those countries that are missing their targets,” says Fredrik Erixon, director of the European Centre for International Political Economy. They would be forced to present “much more realistic budget targets”.
Under new rules that came into force last year, the Commission can ask member states that miss their targets to revise their budget plans.
Recalcitrant member states face fines that start at 0.2% of GDP. In the case of France this would amount to €4bn. The fine can be revised upward. A qualified majority of member states is needed to block the fine in the Council.
The Commission will publish its annual growth prediction at the start of November and issue an opinion on the draft national budgets in mid-November. A Eurogroup meeting of eurozone finance ministers, likely to be on 21 November, will discuss the Commission’s opinions. Member state parliaments must adopt their 2015 budgets by the end of 2014.
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