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Remarks by Commissioner Gentiloni on the updated approach to the fiscal policy response to the coronavirus pandemic

Met dank overgenomen van Europese Commissie (EC), gepubliceerd op woensdag 3 maart 2021.

Thank you Valdis. The decision we took last March to activate the general escape clause was a recognition of the gravity of the unfolding crisis hitting Europe.

It was also a statement of our determination to take all necessary steps to tackle the pandemic and support jobs and companies. I think that this strong reaction was very effective. The preliminary guidance that we are providing today means that we need to keep the clause activated also in 2022.

One year on, we remain in the midst of a very difficult phase. The pandemic continues to take the lives of hundreds of Europeans every single day.

Of course, the rollout of vaccinations, which we are doing everything in our power to accelerate, has shown us that there is light at the end of the tunnel.

We have some indicators showing optimism. For example, the European Sentiment Indicator provided by DG EFCIN or the PMI for manufacturing are both showing a return of optimism.

But at the same time, the battle against COVID-19 is not yet won. And it continues to also take a grim toll on our economy and society.

Other indicators are showing that we are not yet out of this situation. For example, the Oxford Stringency Index and the Mobility Index still show a situation very similar to the one from the last quarter of last year.

We will take our final decision for 2022 in May, jointly with the Council and based on our Spring Economic Forecast.

We felt it was important to provide this preliminary guidance now to give some predictability for Member States, before they submit their Stability and Convergence programmes, their medium-term fiscal plans, to the Commission next month.

Today's Communication also reflects the consensus on some key policy issues that has emerged in our discussions with Member States:

For instance, that we should gradually move from emergency measures to those that support the recovery and resilience, when the health situation allows.

And that fiscal policy should remain agile and effectively adjust as the situation evolves.

But we are also setting the terms today of the debate for the period ahead. In particular, how to conduct fiscal policy in 2022 and over the medium term. There is a growing consensus both in the EU and internationally - for example, this consensus was crystal clear in the G20 finance ministers' meeting last Friday - that we need to maintain a balanced policy mix and that a premature withdrawal of fiscal support should be avoided. That in the current circumstances, the risks of doing little outweigh those of doing much. This a time to “act big”, to quote the new US Treasury Secretary.

So today, the Commission states clearly that pulling back support too quickly would be a policy mistake. The best way to secure public debt sustainability, the best way to reduce the risk of scarring and economic divergence, is to support the recovery.

Our Communication also underlines that budgetary policies will continue to be conducted under pervasive uncertainty. Exactly when to start the pivot in the type of measures and when to start giving less weight to stimulus and more to fiscal prudence can't be answered today. The time will come, of course. We know it's certainly not the case this year. We also know that in 2022 the overall fiscal stance should remain supportive: those with high debt can achieve that also thanks to the considerable transfers they will receive from the RRF. How to calibrate fiscal policy in each Member State should depend on the state of its economy, which in turn depends on the state of the pandemic. Our fiscal policy recommendations in the spring will reflect this.

When it comes to excessive deficit procedures, we will await the outturn data for 2020 which will be available in May, but you will see that our Communication makes clear our thinking on this. By recalling the conclusion that we reached in May last year to not open excessive deficit procedures and considering the high uncertainty still prevailing. I think this uncertainty is still valid this year. We will take a final decision in May.

Those recommendations will also aim to give meaningful medium-term guidance, notably with regard to factoring in the impact of the RRF. Member States' investments, both the nationally financed and the additional investment financed by the RRF, need to be respectively preserved and promoted. Other expenditure increases should be financed by permanent revenue sources.

Lastly, we are confirming today the importance of the economic governance review first launched last February, then put on hold due to the pandemic. We are making clear that the key issues identified back then remain relevant. In fact, the COVID crisis and the need to “build back better” have only reinforced the case for reviewing our fiscal rulebook, to reflect these challenges.

We will therefore restart the review once the recovery takes hold and gains momentum, which as you know we expect to start to happen in the second half of this year.

Thank you.

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