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Activation of the general escape clause of the budgetary framework in view of the COVID-19

The Commission has proposed the activation of the general escape clause of the Stability and Growth Pact (SGP) as part of its strategy for a rapid, strong and coordinated response to the coronavirus pandemic. Following its adoption by the Council, it will allow Member States to take measures to deal with the crisis in an appropriate manner, departing from the budgetary requirements that would normally apply under the European budgetary framework.

The proposal represents an important step in fulfilling the Commission’s commitment to use all the economic policy instruments at its disposal to support Member States in protecting their citizens and mitigating the very negative socio-economic consequences of the pandemic.

President Ursula von der Leyen said: “Today we propose maximum flexibility for our rules which will allow our national governments to support everybody – their healthcare systems, staff as well as the people so severely affected by the crisis,” European Commission President Ursula von der Leyen said on Saturday. “I want to make sure that we respond to the human as well as the socio-economic dimension of the coronavirus pandemic in the best way possible.”

The coronavirus pandemic represents a serious shock to the European and global economy. Member States have already taken or are taking budgetary measures to increase the capacity of their health systems and to support citizens and sectors particularly affected. These measures, together with the fall in economic activity, will contribute to substantially higher budget deficits.

The Commission calls on the Council to adopt its proposal as soon as possible, stating its readiness to take further measures in the light of developments.

COVID-19 measures in Europe

The Commission and the Council have already clarified that the coronavirus pandemic deserves to be considered as an unusual circumstance beyond the control of public administrations’. The Commission believes that far-reaching flexibility is needed under the SGP to protect Europe’s citizens and businesses from the consequences of this crisis and to support the economy in the aftermath of the pandemic. The Commission has therefore decided to propose the activation of the general safeguard clause of the Stability and Growth Pact.

The Commission’s strategy to counter the economic impact of the coronavirus pandemic envisages making full use of the flexibility of our budgetary and state aid frameworks by mobilising the EU budget to enable the EIB Group to provide short-term liquidity to SMEs and to allocate EUR 37 billion to the fight against the coronavirus under the Coronavirus Response Investment Initiative.

FAQs on the General Escape Clause of the Stability and Growth Pact (SGP)

What is the general escape clause?

The clause was introduced as part of the ‘Six-Pack’ reform of the Stability and Growth Pact in 2011, which drew lessons from the economic and financial crisis. In particular, that experience highlighted the need for specific provisions in EU fiscal rules to allow for a temporary coordinated and orderly deviation from the normal requirements for all Member States in a situation of the widespread crisis caused by a severe economic downturn in the euro area or the EU as a whole.

Why is the Commission proposing to activate it now?

The escape clause was introduced to allow a temporary coordinated and orderly deviation from the normal requirements for all Member States in a situation of the generalised crisis caused by a severe economic downturn for the euro area or the EU as a whole.

The coronavirus pandemic is having a major negative impact on the European and global economies. In its Communication of 13 March 2020 on the coordinated economic response to a coronavirus outbreak, based on scenario analysis, the Commission presented an economic scenario showing that real GDP could contract by 1% in the EU in 2020. The Communication noted that we cannot rule out more adverse scenarios linked to a deeper impact of the pandemic. Developments since then suggest that such an adverse scenario has become likely. The fall in economic activity in 2020 could be comparable to the contraction in 2009, the worst year of the economic and financial crisis. Member States are also facing increasing costs associated with effectively containing the pandemic and supporting citizens and businesses that have been affected by the crisis.

The activation of the clause aims to help Member States by allowing them to pursue a fiscal policy that facilitates the implementation of all necessary measures to adequately address the crisis while remaining within the rules-based framework of the SGP.

On the basis of the above considerations, and given the expected severe economic downturn, the Commission considers that the conditions for activating the clause are met and asks the Council to endorse this conclusion.

How will the clause be activated? What are the next steps?

By adopting today’s communication, the Commission formally communicates to the Council that it considers that the conditions for activating the clause have been met. The Council is now invited to approve this in order to provide clarity for Member States. The forthcoming assessment of the Member States’ stability and convergence programmes, the Commission’s spring forecast and the subsequent Commission proposals for country-specific recommendations and their adoption by the Council will provide an opportunity to ensure the necessary coordination and to set the direction for achieving an appropriate supportive fiscal stance at a national and aggregate level.

How will it take into account fiscal sustainability concerns?

The clause stipulates that its implementation should not jeopardize fiscal sustainability. Deviation from the requirements would be temporary.

The Commission’s first priority is to use all the tools at its disposal to safeguard the well-being of people and to ensure that there is an effective and immediate response to the coronavirus pandemic. Member States can use the full flexibility provided for in the fiscal framework to address the health crisis and to deal with its direct economic consequences.

The Commission believes that limiting the immediate economic damage is necessary to limit the risks to medium and long-term fiscal sustainability.

How long will the general escape clause remain in place?

The Commission will apply all the flexibility foreseen in the EU fiscal framework for as long as necessary to allow Member States to implement measures to contain the outbreak of coronavirus and mitigate its negative socio-economic effects.

Today’s proposal follows the adoption by the Commission of a Temporary Framework on State aid, which allows Member States to ensure that companies of all types have sufficient liquidity and to preserve the continuity of economic activity during and after the coronavirus pandemic.

Source: EC