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#Eurozone getting ready to spend more to boost flagging economy - sources

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Eurozone finance ministers are set to agree this month a more growth-friendly fiscal policy, three EU officials said on Friday (7 February), a change from current targets that would pave the way for more spending in Germany amid fears of a downturn, writes Francesco Guarascio @fraguarascio.

Repeated attempts to boost investment and growth in the 19-country bloc have failed in past years as Germany, the eurozone’s largest economy, kept posting large budget surpluses despite calls to spend more.

But now, amid fresh recession fears in Germany and concerns about the impact on the global economy of the coronavirus outbreak in China, eurozone countries have reached a preliminary agreement to increase spending in the event of a downturn.

“If downside risks were to materialize, fiscal responses should be differentiated, aiming for a more supportive stance at the aggregate level,” a draft text agreed by euro zone envoys said, according to an official who had access to it.

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Other two senior EU officials confirmed the preliminary compromise, which needs to be formalised by eurozone finance ministers at a meeting in Brussels on 17 February.

The text, agreed after lengthy negotiations, stresses that higher spending would need to be compliant with EU fiscal rules which mandate a deficit below 3% of gross domestic product, among other requirements.

Despite its restrictions, the move would mark a departure from past statements in which eurozone ministers had recommended a “broadly neutral” fiscal stance, despite weak economic growth.

The change would allow governments with more solid finances to focus more on growth rather than stability as they begin planning for next year’s national budgets.

It could also send a positive message to investors that the bloc is finally heeding calls from the European Central Bank to complement its loose monetary policy with a fiscal push that could make it more effective.

Germany has long insisted on keeping budgets under tight control in a bid to reduce imbalances in countries of the bloc with high levels of debt, like Italy or Greece.

But views in Berlin may be slowly changing after weak growth last year and concerns that in the last quarter Germany may have fallen into recession because of tumbling industry output.

Germany’s Finance Minister Olaf Scholz has said in past months that Germany would loosen the purse strings in the event of an economic crisis, but despite last year’s slowdown it has posted large budget surpluses in the first nine months, Eurostat figures released in January show.

The EU Commission will unveil on Thursday its quarterly forecasts for the euro zone economy and the figures will be discussed by ministers when they adopt the recommendation on the bloc’s fiscal stance. That could help the case of those supporting more spending, an EU official said.

coronavirus

Commission approves German measures worth over €2.5 billion to support rail freight and passenger operators affected by the coronavirus outbreak

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The European Commission has approved, under EU state aid rules, two German schemes supporting the rail freight sector and the long-distance rail passenger sector in the context of the coronavirus outbreak.

Executive Vice President Margrethe Vestager, in charge of competition policy, said: “The measures approved today will help rail freight and passenger operators in Germany weather the difficult situation caused by the coronavirus outbreak. The measures will contribute to maintaining the competitiveness of rail compared to other modes of transport, in line with the objectives of the European Green Deal. We continue working with all member states to ensure that national support measures can be put in place as quickly and effectively as possible, in line with EU rules.”

The two schemes will ensure increased public support to further encourage the shift of freight and passenger traffic from road to rail.

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Support under the schemes will take the form of a reduction of the charges paid by railway companies to access rail infrastructure in both the rail freight and the long-distance rail passenger sectors. The measures will thereby help prevent the loss of market shares of rail transport vis-à-vis competing modes of transport.   

The first measure, which has an estimated budget of €2.1 billion, will relieve long-distance rail passenger operators of approximately 98% of the infrastructure charges paid during the period from 1 March 2020 to 31 May 2022.

The second measure amends an existing aid scheme of 2018 supporting rail freight operators in Germany. With an estimated budget of €410 million, the amendment increases the support approximately 98% of the infrastructure charges paid by rail freight operators during the period from 1 March 2020 to 31 May 2021. The measure follows a similar budget increase for the period from 1 June to 31 December 2021, approved by the Commission last May.  

The Commission found that the measures are beneficial for the environment and for mobility as they support rail transport, which is less polluting than road transport, while also decreasing road congestion. The Commission also found that the measures are proportionate and necessary to achieve the objective pursued, namely to support the modal shift from road to rail whilst not leading to undue competition distortions.

Finally, the reduction of infrastructure charges is in line with Regulation (EU) 2020/1429. This Regulation allows and encourages member states to temporarily authorise the reduction, waiver or deferral of charges for accessing rail infrastructure below direct costs.

As a result, the Commission concluded that the measures comply with EU State aid rules, in particular the 2008 Commission Guidelines on State aid for railway undertakings (“the Railway Guidelines”).

Background

The Railway Guidelines clarify the rules set out in EU treaties for the public funding of railway companies and provide guidance on the compatibility of State aid for railway companies with the EU treaties.

The non-confidential version of the decision will be made available under the case number SA.63635 in the state aid case register on the Commission's competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.

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Employment

Only 5% of total applications for long-term skilled work visas submitted in first quarter came from EU citizens, data shows

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The figures released by the UK Home Office give an indication of how Britain’s new post-Brexit immigration system will affect numbers of EU citizens coming to the UK to work. Between January 1 and March 31 this year EU citizens made 1,075 applications for long-term skilled work visas, including the health and care visa, which was just 5% of the total 20,738 applications for these visas.

The Migration Observatory at the University of Oxford said: “It is still too early to say what impact the post-Brexit immigration system will have on the numbers and characteristics of people coming to live or work in the UK. So far, applications from EU citizens under the new system have been very low and represent just a few percent of total demand for UK visas. However, it may take some time for potential applicants or their employers to become familiar with the new system and its requirements.”

The data also shows that the number of migrant healthcare workers coming to work in the UK has risen to record levels. 11,171 certificates of sponsorship were used for health and social care workers during the first quarter of this year. Each certificate equates to a migrant worker. At the start of 2018, there were 3,370. Nearly 40 percent of all skilled work visa applications were for people in the health and social work sector. There are now more migrant healthcare visa holders in the UK than at any time since records began in 2010. Although the number of sponsor licences for healthcare visas dropped to 280 during the first lockdown last year, it has continued to rise since, a pattern which was unaffected by the third lockdown this winter.

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Conversely, the IT, education, finance, insurance, professional, scientific and technical sectors have all seen a drop in the number of migrants employed so far this year, despite rallying during the second half of 2020. The number of migrant IT workers is still significantly lower than pre-Covid levels. In the first quarter of 2020 there were 8,066 skilled work visas issued in the IT sector, there are currently 3,720. The number of migrant professionals and scientific and technical workers has also dipped slightly below pre-Covid levels.

Visa expert Yash Dubal, Director of A Y & J Solicitors said: “The data shows that the pandemic is still affecting the movement of people coming to the UK to work but does give an indication that demand for skilled work visas for workers outside the EU will continue to grow once travel has been normalised. There is particular interest in British IT jobs from workers in India now and we expect to see this pattern continue.”

Meanwhile the Home Office has published a commitment to enable the legitimate movement of people and goods to support economic prosperity, while tackling illegal migration. As part of its Outcome Delivery Plan for this year the department also pledges to ‘seize EU exit opportunities, through creating the world’s most effective border to increase UK prosperity and enhance security’, while acknowledging that income it collects from visa fees may decrease due to reduced demand.

The document reiterates the Government’s plan to attract the "brightest and best to the UK".

Dubal said: “While the figures relating to visas for IT workers and those in the scientific and technical sectors do not bear this commitment out, it is still early days for the new immigration system and the pandemic has had a profound effect on international travel. From our experience helping facilitate work visas for migrants there is a pent-up demand that will be realised over the coming 18 months.”

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Economy

NextGenerationEU: Four more national plans given thumbs up

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Economy and finance ministers today (26 July) welcomed the positive assessment of national recovery and resilience plans for Croatia, Cyprus, Lithuania and Slovenia. The Council will adopt its implementing decisions on the approval of these plans by written procedure.

In addition to the decision on 12 national plans adopted earlier in July, this takes the total number to 16. 

Slovenia’s Finance Minister Andrej Šircelj said: “The Recovery and Resilience Facility is the EU’s programme of large-scale financial support in response to the challenges the pandemic has posed to the European economy. The facility’s €672.5 billion will be used to support the reforms and investments outlined in the member states’ recovery and resilience plans.”

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Reforms and investments

The plans have to comply with the 2019 and 2020 country-specific recommendations and reflect the EU’s general objective of creating a greener, more digital and more competitive economy.

Croatia plans to implement to reach these goals include improving water and waste management, a shift to sustainable mobility and financing digital infrastructures in remote rural areas. 

Cyprus intends, among other things, to reform its electricity market and facilitate the deployment of renewable energy, as well as to enhance connectivity and e-government solutions.

Lithuania will use the funds to increase locally produced renewables, green public procurement measures and further developing of the rollout of very high capacity networks.

Slovenia plans to use a part of the allocated EU support to invest in sustainable transport, unlock the potential of renewable energy sources and further digitalise its public sector.

Poland and Hungary

Asked about delays to the programmes of Poland and Hungary, the EU’s Economy Executive Vice President Valdis Dombrovskis said that the Commission had proposed an extension for Hungary to the end of September. On Poland, he said that the Polish government had already requested an extension, but that that might need a further extension. 

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