European Commission might open the excessive deficit procedure against Romania, Poland and Malta on Wednesday
On May 4, European Commissioner for Economic and Monetary Affairs Joaquin Almunia stated that 12 European Union member states recorded Government deficits in excess of 3 percent in 2008, and there will be 21 such countries to record excessive deficits in 2009. He also said that the situation should be considered against the special conditions generated by the ongoing global crisis that affects the entire world.
Almunia also said that fiscal incentives are necessary to overcome the difficult situation and that an evaluation of the stimulating measures taken by the EU member states indicates that they follow the guidelines of the European Economic Recovery Plan (EERP) and these are targeted, temporary and reversible measures.
He added that the situation should be considered on a country-by¬country basis, because all countries cannot afford to grant incentives to an equal extent.
The commissioner also said that the Stability and Growth Pact will continue to be enforced, adding that this March the European Commission presented some recommendations for correction of excessive deficits in the case of four countries that are members of the Eurozone, and these recommendations were later on approved by the finance ministers of the EU27.
The excessive deficit procedure is regulated under Article 104 of the Stability and Growth Pact, which says that member states shall avoid excessive government deficits.
The commission monitors the development of the budgetary situation and of the stock of government debt in the member states with a view to identifying gross errors. If a member state fails to fulfill the requirements (a government deficit of 3 percent of the Gross Domestic Product at the most) the Commission draws up a report and submits is to the Council of the EU.
Where the existence of an excessive deficit is decided, the Council makes recommendations to the member state concerned with a view to bringing that situation to an end within a given period.
These recommendations are not made public but submitted to the government concerned; where it establishes that there has been no effective action in response to its recommendations within the period laid down, the Council may make its recommendations public.
If a member state persists in failing to put into practice the recommendations of the Council, the Council may decide to give notice to the member state to take, within a specified time-limit, measures for the deficit reduction which is judged necessary by the Council in order to remedy the situation.
The Council may in such case recommend the Government concerned to make public additional information concerning its financial situation, invite to European Investment Bank to no longer lend to the Government concerned or imposes fines on the member state concerned.
The latest International Monetary Fund report on Romania indicates that public spending in the country has worsened the current economic hardships of the country. Government spending doubled between 2005 and 2008 and wage increases and a policy of massive recruitment in the public sector made that the Government paid wages that were almost three times more in 2008 than in 2005.
That is why, the report argues, reducing government spending and making the fiscal policy more relaxed to sustain the weakened economy of the country are almost impossible the achieve now. Public spending, it is said, is too high to allow the Government to finance its deficit from its own sources.