Gentiloni ‘concerned’ spending cuts by member states could hamper EU recovery

4 months ago 20

European Commissioner for Economy Paolo Gentiloni said on Wednesday (15 May) that he is “concerned” that budget cuts by national governments could hamper the EU’s fragile recovery, warning against the risk of sending the bloc’s economy into stagnation.

“Are we concerned [about] the fact that [a] too restrictive fiscal stance could affect this moderate forecast of growth? Well, I am concerned, I think we need to keep a balance,” said Gentiloni.

“We don’t need to bring our economy to stagnation again. We have to support the acceleration of the economy without too restrictive fiscal stances,” he added.

Gentiloni, however, expressed optimism that the bloc’s new fiscal rules — which unions and many analysts have warned will hamper the bloc’s ability to make critical investments — will provide sufficient scope for growth-enhancing public expenditures.

“This, I think, should be the attitude in our negotiation with member states in the coming months. I think the new rules are giving us the room for manoeuvre for this kind of result,” he said, referring to the individually-tailored ‘reference trajectories’, or fiscal plans, that will have to be negotiated between the EU executive and individual countries under the new rules.

Gentiloni’s comments came as the Commission downgraded its projected GDP growth for the bloc next year from 1.7% to 1.6%, predicting an overall slowdown in investment in more than two-thirds of the EU’s 27 member states in 2024 — with the aggregate figure falling from 1.5% in 2023 to 0.3% this year.

It should be noted, that the expected slowdown in total investment comes despite a forecast increase in public investment, which is set to grow from 3.5% to 3.6% across the bloc from 2023 to 2024.

“There is a clear contradiction between the overall picture of investment, [which is] unfortunately decelerating, and the fact that public investment continues to be high,” said Gentiloni.

Echoing previous comments, also Gentiloni emphasised the importance of the EU’s €806.9 billion Next Generation EU (NextGenEU) programme in enhancing the bloc’s economic resilience.

“Next Generation EU is key to buffering weak private sector demand and investments, and all of this in a context of high geopolitical risks and elevated uncertainty,” he said.

Agreed at the height of the pandemic in July 2020, NextGenEU provides member states with billions of euros in funds to stimulate their post-pandemic economies in exchange for targeted reforms. It is the first EU initiative to be funded entirely by jointly-issued EU debt.

Despite being praised by numerous top officials including Eurogroup President Paschal Donohoe and IMF Managing Director Kristalina Georgieva, the fund’s renewal beyond its scheduled expiry 2026 is heavily resisted by conservative groups as well as more frugal member states — including Germany, the bloc’s largest economy.

[Edited by Rajnish Singh]