On Tuesday January 13 the European Commission indicated some scope for leeway in interpreting the Stability Pact. It could suggest an extra delay period so that countries can progress with substantial structural reforms. Furthermore Member States spending related to European co-financing projects will receive specific treatment within the Stability Pact agreement. A priori these moves send a positive signal to France who as a result may be able to benefit from a third period of reprieve to get its budget deficit to 3% by 2017 or 2018, under the proviso that substantial structural reforms actually take place. This new guidance from the Commission is actually more mixed when one realizes that the flexibility now built in will more likely be of benefit to the Member States whose budget deficits are already at or below 3%.
Flexibility conditional on structural reforms. On January 13 the European Commission presented its Communication on flexibility in the Stability and Growth Pact; its tool ensuring EU budget discipline that fixes Member States allowed budget deficit levels at 3% of GDP and debt levels at 60%. The Commission can cater for deviations of up to 0.5% of GDP from these budget targets over the medium term for those countries that have more or less respected the rules so as to allow them to finance structural reforms.
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