This morning France and Germany called for a relaxation of the 3% deficit ceiling. today Almunia said this will likely be the case: since its reform, the SGP is meant to allow flexibility; although, the commissioner specified that any exception needs to be temporary (the usual bureacratic caveat). Where do the countries stand?
Just a quick look at the numbers from OECD for 2008:
| Deficit |
Under the SGP definition, France and the UK are above the ceiling. The current forecasts don't point to negative numbers when talking about GDP growth for 2009, but if the recession is going to be as the average recession in EMU (a GDP slowdown by less than -1.00), then this will imply an average increase in the fiscal deficit by 0.80 in percent of GDP only due to the working of automatic stabilizers (calculations are not reported, but available upon request from the author). This means Portugal, Italy, France and Greece will likely find themselves above the ceiling next year without any government action. I wonder how flexible is going to be the Commission when it comes to the implementation of the "discretionary" intervention, especially toward the more highly indebted countries. Will they suggest to do something timely, targeted and temporary?Or something else?