EC to consider extending borrowing limit suspension

The European Commission is to consider extending its borrowing limit suspension beyond 2023 in order to support economic growth.

EC officials announced the Commission would review the current plan in May, noting that the Russian invasion of Ukraine is slowing down economic growth in the EU, Reuters reported on Wednesday.

The EU adopted the Stability and Growth Pact to protect the euro, but in 2020 the bloc suspended the rules to help governments deal with the effects of the coronavirus crisis.

The suspension is to be lifted in 2023, but the EC has decided to reassess the plan due to new risks including the war in Ukraine, sanctions against Russia, rising energy prices, financial market disturbances and inflation.

European Commissioner for Economy Paolo Gentiloni noted that the EC will base its re-assessment on the spring forecast, which he is to present in mid-May.

Debt reduction rule to remain suspended

Irrespective of its reassessment, the EC will not reapply rules requiring EU member states to lower their debt each year by 5% of their respective excess over 60% of GDP.

European Commissioner for Trade, Valdis Dombrovskis, stressed that the rule would remain suspended because some EU member states would not be able to comply. He cited Greece and Italy with debts of more than 200% and 160% of GDP, respectively.

The EC advised member states to be prepared to react quickly in the event that the crisis in Ukraine causes new challenges for the bloc. It called on EU member states with high debt to GDP ratios to tighten their fiscal policies next year and advised those with low ratios to focus on investments.

In early February, the Commission predicted that eurozone GDP growth this year would be lower than previously expected, forecasting growth of 4% in contrast with the previous 4.3%.

According to Gentiloni, there is too much uncertainty to make growth predictions for this year with any degree of accuracy. “Uncertainty and risks have increased markedly, which is why our guidance will need to be updated as necessary, at the latest in the spring”, he said.


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