EU too soft on fiscal rules, risks from high-debt states: auditors
BRUSSELS (Reuters) – The eu Commission has applied fiscal rules with excessive flexibility, making them ineffective in lessening debt in highly indebted states like Italy, auditors said on Thursday, warning of hazards of spillovers from negative market reactions.
To address widespread concerns on the desolate man the euro, the eu, in moves led by Germany, tightened its fiscal rules within the peak in the bloc's debt crisis in 2010-2012 and imposed bold economic adjustment targets on member states, triggering criticism by so many economists for the resulting austerity.
However those rules were applied with excessive lenience through the Commission, the ecu Court of Auditors (ECA) said in the directory of Thursday.
"The European Commission has extensively used discretionary powers to lessen the adjustment requirements," ECA said.
The auditors, who definitely have a mandate in order to safeguard the financial interests with the EU citizens, said this excessive flexibility prevented the fiscal targets from being reached "inside of a reasonable period" – a situation that will cause negative market reactions for your bloc inside a possible future recession, they said.
The EU executive claimed it "strongly disagrees together with the ECA's conclusion that this Commission used its discretion using a view to reducing adjustment requirements."
In replies inside the auditors' report, it added which it had exercised its powers fully respect from the EU legal framework.
Under EU fiscal rules, states need to try and reach a balanced structural budget, maintain a deficit below Three percent of these gross domestic product as well as a public debt below 60 percent. However, many have a lot higher and growing public debts.
"The pliability provisions introduced by the Commission usually are not time-bound into the crisis period and actually went past an acceptable limit in practice," said Neven Mates, the EU auditor accountable for the report in addition to a former member of staff within the International Monetary Fund.
"Particularly worrisome can be quite slow, or perhaps absent adjustment in several member states with higher public debt ratio," the report said, highlighting Italy, France and Spain.
Italy, with a debt above 130 percent of its GDP, the EU's highest after bailed-out Greece, has took advantage of several waivers through the rules recently, as more spending and investment was thought to be helpful revamp its sluggish economic growth.
As a result its debt has remained high.