Economy Commissioner Paolo Gentiloni today (12 May) presented the EU’s Spring Economic Forecast. The latest projections estimate that the EU economy will expand by 4.2% in 2021 and by 4.4% in 2022.
While growth rates vary across the EU, the Commission forecasts that all EU countries should see their economies return to pre-crisis levels by the end of 2022.
The more rosy picture is due in part due to the efficiency and effectiveness of vaccine rollout and the growth in consumption, investment and rising demand for EU exports from a strengthening global economy.
Gentiloni said: “For a year, we have been presenting forecasts that were very negative. Today for the first time since the pandemic hit we see some optimism prevailing over uncertainty. That uncertainty is, of course, still there and we should never forget this. But recovery is no longer a mirage. It is under way. We must avoid mistakes that could undermine it, namely a premature withdrawal of policy support. The quality, the strength, and the duration of the recovery could still be influenced by the pandemic, but our economic fate is primarily in our own hands. And that is why we need to roll up our sleeves.”
Higher levels of growth will be driven by the highest level of public investment, as a proportion of GDP, for more than a decade by 2022. This will be helped in no small part by the Recovery and Resilience Facility (RRF), the key instrument at the heart of NextGenerationEU.
While the Commission has seen some evidence that the labour market is improving with employment rising in the second half of 2020 and unemployment rates decreasing, for some countries the levels of unemployment remain stubbornly high, with Greece at a shocking 16%.
Public support schemes, including those underpinned by the EU’s SURE instrument, have prevented an even worse scenario, but rates of unemployment are estimated to remain higher than pre-pandemic levels after 2022. It is anticipated that companies will not be hiring until there is a further recovery.
Inflation rose sharply early this year, due to the rise in energy prices and a number of temporary, technical factors, such as the annual adjustment to the weightings given to goods and services in the consumption basket used to calculate inflation. The reversal of a VAT cut and the introduction of a carbon tax in Germany also had a noticeable effect. The Commission project that inflation will however remain below the target rate of 2%.
Deficit to exceed 3%
Public debt levels are expected to peak in 2021, all EU countries, except for Denmark and Luxembourg, are expected to exceed the 3% rule laid down in the Stability and Growth Pact in 2021, but this is forecasted to fall significantly in 2022. In the EU, the ratio of public debt to GDP is forecast to peak at 94% this year before decreasing slightly to 93% in 2022.
Gentiloni’s main concern is the premature withdrawal of support measures which could jeopardise the recovery. On the other hand, he acknowledges that a delayed withdrawal could lead to the creation of market distortions and prolong the life of unviable firms.
There is also a warning that corporate distress and the financial sectors situation could prove worse than anticipated.
Big countries' tax deal to reveal rift in Europe
4 minute read
A global deal on corporate tax looks set to bring to a climax a deep-seated European Union battle, pitting large members Germany, France and Italy against Ireland, Luxembourg and the Netherlands. Read more.
Although the smaller EU partners at the centre of a years-long struggle over their favourable tax regimes, welcomed the Group of Seven deal on June 5. for a minimum corporate rate of at least 15%, some critics predict trouble implementing it.
The European Commission, the EU's executive, has long struggled to get agreement within the bloc on a common approach to taxation, a freedom which has been jealously guarded by all its 27 members, both large and small.
"The traditional EU tax holdouts are trying to keep the framework as flexible as possible so that they can continue to do business more or less as usual," Rebecca Christie of Brussels-based think tank Bruegel said.
Paschal Donohoe, Ireland's finance minister and president of the Eurogroup of his euro zone peers, gave the G7 wealthy countries' deal, which needs to be approved by a much wider group, a lukewarm welcome.
"Any agreement will have to meet the needs of small and large countries," he said on Twitter, pointing to the "139 countries" needed for a wider international accord.
And Hans Vijlbrief, deputy finance minister in the Netherlands, said on Twitter that his country supported the G7 plans and had already taken steps to stop tax avoidance.
Although EU officials have privately criticised countries such as Ireland or Cyprus, tackling them in public is politically charged and the bloc's blacklist of 'uncooperative' tax centres, due to its criteria, makes no mention of EU havens.
These have flourished by offering companies lower rates through so-called letter-box centres, where they can book profits without having a significant presence.
"European tax havens have no interest in giving in," Sven Giegold, a Green-party member of the European Parliament lobbying for fairer rules, said of the prospects for change.
Nevertheless, Luxembourg's finance minister Pierre Gramegna welcomed the G7 accord, adding that he would contribute to a wider discussion for a detailed international agreement.
Although Ireland, Luxembourg and the Netherlands welcomed the long-fought for reform, Cyprus had a more guarded response.
"The small EU member states' should be acknowledged and taken into consideration," Cyprus's Finance Minister Constantinos Petrides told Reuters.
And even G7 member France may find it hard to completely adjust to the new international rules.
"Big countries like France and Italy also have tax strategies they are determined to keep," Christie said.
The Tax Justice Network ranks the Netherlands, Luxembourg, Ireland and Cyprus among the most prominent global havens, but also includes France, Spain and Germany on its list.
Europe's divisions flared up in 2015 after documents dubbed the 'LuxLeaks' showed how Luxembourg helped companies channel profits while paying little or no tax.
That prompted a clampdown by Margrethe Vestager, the EU's powerful antitrust chief, who employed rules that prevent illegal state support for companies, arguing that such tax deals amounted to unfair subsidies.
Vestager has opened investigations into Finnish paper packaging company Huhtamaki for back taxes to Luxembourg and investigating the Dutch tax treatment of InterIKEA and Nike.
The Netherlands and Luxembourg have denied the arrangements breach EU rules.
But she has had setbacks such as last year when the General Court threw out her order for iPhone maker Apple (AAPL.O) to pay €13 billion ($16bn) in Irish back taxes, a ruling which is now being appealed.
Vestager's order for Starbucks to pay millions in Dutch back taxes was also rejected.
Despite these defeats, judges have agreed with her approach.
"Fair taxation is a top priority for the EU," a spokesperson for the European Commission said: "We remain committed to ensuring that all businesses ... pay their fair share of tax."
The Netherlands in particular has underscored a willingness to change after criticism of its role as a conduit for multinationals to move profits from one subsidiary to another while paying no or low taxes.
It introduced a rule in January taxing royalties and interest payments sent by Dutch companies to jurisdictions where the corporate tax rate is less than 9%.
"The demand for fairness has grown," said Paul Tang, a Dutch member of the European Parliament. "And now it is combined with a need to finance investment."
($1 = €0.8214)
Global Europe: €79.5 billion to support development
The EU is set to invest €79.5 billion on development and international cooperation in neighbouring countries and further afield by 2027, Society.
As part of its 2021-2027 budget, the European Union is overhauling how it invests outside the bloc. Following a landmark deal with EU countries in December 2020, MEPs will vote during June's plenary session in Strasbourg on establishing the €79.5bn Global Europe fund, which merges several existing EU instruments, including the European Development Fund. This streamlining will allow the EU to more effectively uphold and promote its values and interests worldwide and respond more swiftly to emerging global challenges.
The instrument will finance the EU's foreign policy priorities in the coming seven years and support sustainable development in EU neighbourhood countries, as well as in sub-Saharan Africa, Asia, the Americas, the Pacific and the Caribbean. Global Europe will support projects that contribute to addressing issues such as poverty eradication and migration and promote EU values such as human rights and democracy.
The programme will also support global multilateral efforts and ensure the EU is able to live up to its commitments in the world, including the Sustainable Development Goals and the Paris climate accord. Thirty percent of the programme’s overall funding will contribute to achieving climate objectives.
At least €19.3bn is earmarked for EU neighbourhood countries with €29.2bn set to be invested in sub-Saharan Africa. Global Europe funding will also be set aside for rapid response action including crisis management and conflict prevention. The EU will boost its support to sustainable investment worldwide under the European Fund for Sustainable Development Plus, which will leverage private capital to complement direct development assistance.
In negotiations with the Council, Parliament ensured MEPs’ increased involvement in strategic decisions regarding the programme. Once approved, the regulation on Global Europe will retroactively apply from 1 January 2021.
Global Europe is one of 15 EU flagship programmes supported by the Parliament in the negotiations on the EU's budget for 2021-2027 and the EU recovery instrument, which collectively will allow the Union to provide more than €1.8 trillion in funding over the coming years.
Parliament calls for greater scrutiny over national recovery plans
MEPs held a debate on national recovery efforts today (8 June) demanding oversight of the implementation of the Recovery and Resilience Facility (RRF).
In a resolution adopted in May with 602 votes in favour, 35 against and 56 abstentions, MEPs restated that, in line with the contents of the RRF Regulation, the European Parliament is entitled to receive relevant information on the state of play on the implementation of national recovery and resilience plans (RRPs).
To ensure greater transparency and democratic accountability of national recovery and resilience plans, MEPs expect to receive from the Commission the necessary background information as well as a summary of the reforms and investments from the national plans it has received. They also expect this information to be provided to Parliament in an easily- understandable and comparable format.
On Tuesday, MEPs will discuss with the Commission and the Council the ongoing evaluation of the national recovery plans submitted so far by EU member states. The European Parliament wants to verify that the six agreed policy areas of the green transition, digital transformation, competitiveness, social cohesion, institutional crisis-reaction and preparedness, as well as the next generation including education and skills are covered in each plan.
Leader of the S&D Group Iratxe García Pérez MEP said: “We have to make sure that those governing in Hungary, Poland, Slovenia and Bulgaria actually comply with rule of law and do not divert funds into the hands of their friends.”
MEPs argue that full transparency and accountability involving Parliament would both ensure and enhance the democratic legitimacy and sense of citizens' ownership of the RRF. In order to ensure the involvement of civil society, and local and regional authorities in the implementation of the plans, MEPs call on the Commission to prompt member states to consult all national stakeholders and to monitor them to make sure consultation takes place for any future amendments or for new plans.
President of the European Commission Ursula von der Leyen also underlined the important role for MEPs in the process in what she described as a European recovery saying: “We Europeans are in this crisis together, we will come out of it together, we will come out stronger than ever before. Next Generation EU has shown how much we can achieve when we all work together. So with more confidence than ever.”
All EU member states have now ratified the Own Resources Decision (ORD) this allows the Commission to start to borrow for the first time to finance the Next Generation EU. Countries have started submitting their plans for scrutiny by the European Commission, and approval by the Council of the EU. It is expected that pre-financing upfront payments could be made by as soon as September.
Bulgaria3 days ago
The caretaker government in Bulgaria attacks public service television in an attempt to silence the opposition
UK3 days ago
Biden has a Brexit warning for Britain: Don't imperil Northern Irish peace
COVID-193 days ago
Mainstream media risks becoming a threat to public health
EU3 days ago
Parliament votes to take Commission to court over inaction on breaches of the rule of law
Human Rights2 days ago
New Decree on Human Rights in Kazakhstan.
Brexit4 days ago
Brexit Adjustment Reserve: MEPs want swift disbursement of €5 billion fund
Health5 days ago
Interview with Eric Bossan, Head of Europe Viatris
coronavirus4 days ago
EU Digital COVID Certificate: It’s now up to EU countries