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Chart of the week: fiscal deficits in the euro area under the new forecast

The 2012 Autumn Economic Forecast of the European Commission confirms the Spring Forecast expectation that several euro area countries, including Fran

Publishing date
08 November 2012

The 2012 Autumn Economic Forecast of the European Commission confirms the Spring Forecast expectation that several euro area countries, including France, will breach their commitment to return below a 3 percent deficit in 2013, unless they change their budget plans or the EU gives them more time to meet their commitment. However, most of these countries, including France, appear to be taking EU rules seriously as their structural balance figures have improved since the Spring Forecast.

In the Policy Brief “Fiscal rules – timing is everything” we used fiscal deficit figures from the 2012 Spring Economic Forecast of the European Commission  to assess how far each euro area member was likely to be from its own deficit target. At the time, the following countries were found to be at risk of being sanctioned for an excessive deficit in 2013: Cyprus, Slovenia, Slovakia, France, Spain and the Netherlands[1]. During the summer, Spain’s deadline for correction was extended from 2013 to 2014 in light of the country’s poor growth conditions.

Here we compare nominal deficits of all euro countries under Excessive Deficit Procedure with the exception of assisted countries (Greece, Portugal and Ireland) as they appeared in the Commission’s Spring Forecast (Figure 1 a) with those in the Autumn Forecast published this week (Figure 1 b). The countries that are still likely to face sanctions for excessive deficits in 2013 are: Cyprus, Slovenia, Slovakia and France. Hence, besides Spain, the Netherlands have been removed from the list due to its budgetary adjustment.

Figure 1: Expected evolution of deficit levels, 2012 and 2013

(a)    Spring 2012                                                 (b) Autumn 2012

RTEmagicC_121108_P1.jpg

RTEmagicC_121108_P2.jpg

Source: author’s own elaboration based on 2012 Spring Economic Forecast and on 2012 Autumn Economic Forecast

Excessive deficits may stem either from the lack of discretionary government measures or from lack of growth. Discretionary government measures are best captured by structural balance figures[2]. A majority of euro area governments is found in the Autumn Forecast to be going through a more ambitious structural adjustment path than projected by the Spring Forecast (for details see Table 1). This is especially true for the Netherlands and Slovakia, although the latter is still expected to breach the 3 percent limit in 2013, but not by much. Structural adjustment is also substantial in France. The only exception among countries potentially facing sanctions in 2013 is Cyprus, which is however likely to enter into the list of programme countries, and therefore to exit the list of countries having to return below the 3 percent mark by 2013, fairly soon. On this basis it appears that France and Slovakia should probably be given, like Spain, an extra year to meet their budgetary requirement and therefore escape sanctions for excessive nominal deficits in 2013.

Table 1: Changes in the structural balance 2012 - 2013 across the two forecasts

RTEmagicC_121108_P4.jpg

Source: author’s own elaboration based on 2012 Spring Economic Forecast and on 2012 Autumn Economic Forecast

Table 2: The 2013 structural balance across the two forecasts (% of GDP)

RTEmagicC_121108_P3.jpg

Source: author’s own elaboration based on 2012 Spring Economic Forecast and on 2012 Autumn Economic Forecast


[1] For Cyprus the deadline for deficit correction is 2012 (and so is for Belgium). For all others it is 2013.

[2] The structural balance is defined as the cyclically adjusted balance net of one-off and temporary measures.

About the authors

  • André Sapir

    André Sapir, a Belgian citizen, is Senior Fellow at Bruegel. He is also University Professor at the Université libre de Bruxelles (ULB) and Research Fellow of the London-based Centre for Economic Policy Research.

    Between 1990 and 2004, he worked for the European Commission, first as Economic Advisor to the Director-General for Economic and Financial Affairs, and then as Principal Economic Advisor to President Prodi, also heading his Economic Advisory Group. In 2004, he published 'An Agenda for a Growing Europe', a report to the president of the Commission by a group of independent experts that is known as the Sapir report. After leaving the Commission, he first served as External Member of President Barroso’s Economic Advisory Group and then as Member of the General Board (and Chair of the Advisory Scientific Committee) of the European Systemic Risk Board based at the European Central Bank in Frankfurt.

    André has written extensively on European integration, international trade, and globalisation. He holds a PhD in economics from the Johns Hopkins University in Baltimore, where he worked under the supervision of Béla Balassa. He was elected Member of the Academia Europaea and of the Royal Academy of Belgium for Science and the Arts.

  • Benedicta Marzinotto

    Benedicta Marzinotto was a Resident Fellow at Bruegel from 2010 to 2013. She is now with the European Commission as a Policy Analyst – Economist, Labour market reforms, at DG ECFIN.

    She is also a Lecturer in Political Economy at the University of Udine and Visiting Professor at the College of Europe (Natolin Campus).

    Her research for Bruegel focused on EU macroeconomic developments, EU Institutions, finance and growth. More precisely, she was working on the macroeconomics of the recent crisis, the competitiveness debate (macro and micro-approach), the role of the EU budget in the crisis and the impact of financial regulation on economic growth.

    From 2004 to 2009, Benedicta was a Research Fellow in the International Economics Programme at Chatham House. She also has experience as a freelance political economic analyst. She has held visiting positions at the Free University of Berlin and at the University of Auckland.

    Benedicta holds a MSc and PhD in European Political Economy from the London School of Economics. Her research interests include: EU macroeconomics, EU economic governance, varieties of capitalism, and labour markets institutions.

    She is fluent in Italian, English and German.

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