The EU slowly exits from “Excessive Deficit Procedure” and hopefully from ‘Excessive Austerity Procedure’ too

Jose Manuel Barroso, President of the European Commission (EC Audiovisual Services)

Earier this week, on the 2^nd of June, the European Commission (EC) decided to recommend to the EU Council of Finance Ministers to close the Excessive Deficit Procedure (EDP) for six countries. The reason why Austria, Belgium, Czech Republic, Denmark, the Netherlands and Slovakia must exit EDP is because these countries managed to lower their deficits under 3% of GDP.

Excessive Deficit Procedure

This is a procedure that was settled in the Treaty on the Functioning of the European Union in order to make sure that the Member States correct gross fiscal policy errors. The two fundamental pillars of this process are first to ensure that the general government deficit lies under 3% of GDP and second the gross government debt under 60% of GDP. If these criteria are breached, then the opening of an EDP is characterised as justified. Furthermore, the countries that are under EDP supervision by the Economic and Financial Affairs Council (ECOFIN) must follow EC’s recommendations and materialize them in a specific time frame.

Member states under EDP

There has been a significant change in the number of the counties that were under EDP surveillance since 2011. In 2011 around 24 countries were in EDP whereas now the number is reduced to 17 with the prospect of further decrease to 11 if the EU Council of Finance Ministers will accept the EC’s recommendations at its meeting on 20 June in Luxembourg. Apart from the six Member States already mentioned in the beginning, Bulgaria, Germany, Estonia, Italy, Hungary, Latvia, Lithuania, Luxembourg, Romania, Finland and Sweden are also out of EDP’s supervision.

Numbers and not people

“The efforts and sacrifices made across Europe have started to pay off,” said Jose Manuel Barroso, European Commission’s president. The sayings of the president are reasonable if we take into account the fact that six more countries are into consideration to exit the EDR. However, if we take a closer look and not just stay in the threshold of 3% deficit of GDP, we would see the debt to GDP is not lowered enough (remains above 60%) to be in line with EDP’s reference points. Moreover, austerity measures that are leading to low deficits are contributing to unemployment rise in the short-run which is increasing “socioeconomic safety nets”, programs that each government has to follow to help poor people not drop below poverty levels. Consequently, spending cuts lead to higher debt to GDP ratios and unemployment rates which have a negative effect on the well-being of EU citizens.

The Dutch example

One of the counties to be a good paradigm in this sense is the county of tulips. Even if the Netherlands is one of the strongest economies in the EU and potentially the world, it was strongly hit by the European debt crisis.  The country entered the EDP in 2009 when the government’s deficit reached at 5.6% of GDP. The deadline that was set to reduce it in levels lower than 3% was extended till 2013. The government managed to accomplish this goal resulting to a deficit of GDP of 2.5% in 2013. Furthermore, the EC’s forecasts for 2014 and 2015 are that the deficit will reach 2.8% and 1.8% of GDP respectively.

All these seem ideal for EU fiscal policies but what about the people that are enduring these austerity measures for all these years? Was there no other way? A few weeks ago during the exclusive Sting’s interview at EBS 2014, The President of the European Socialists and Democrats, Hannes Swoboda, said: “Austerity was not the alternative”. The deficit’s decrease comes at greater costs. High unemployment rate of 7.2% (Eurostat, April 2014), cuts on healthcare expenditures and public wages and heavier taxation are only a few horrible consequences to mention. Thus, like many European Dutch people and also expats who live in the Netherlands sustain austerity measures hoping that growth will come.

Let’s see who comes first though, growth or despair.