Annexes to COM(2021)529 - Belgium, Bulgaria, Czechia, Denmark, Germany, Estonia, Ireland, Greece, Spain, France, Croatia, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Hungary, Malta, the Netherlands, Austria, Poland, Portugal, Slovenia, Slovakia, Finland and Sweden Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the EU - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2021)529 - Belgium, Bulgaria, Czechia, Denmark, Germany, Estonia, Ireland, Greece, Spain, France, Croatia, Italy, Cyprus, Latvia, ... |
|---|---|
| document | COM(2021)529 |
| date | June 2, 2021 |
In 2021, the general government deficit for the EU and euro area as a whole is set to increase further to 7.5% of GDP and 8% respectively (up by around ½ and ¾ of a percentage point of GDP, respectively). The increase in the deficit is mainly due to the adoption of new or extended emergency measures to support economic activity at the time of new necessary restrictions in the first half of the year.
Based on the Commission’s forecast, in 2021 the general government deficit ratio is expected to fall (in some cases only marginally) in half of the 26 Member States covered in this report – i.e. Belgium, Bulgaria, Ireland, Spain, France, Croatia, Cyprus, Luxembourg, Hungary, Austria, Poland, Portugal and Finland –, due to the rebound in economic activity and the gradual phasing out of temporary emergency measures. However, only Denmark and Luxembourg are projected to run a deficit of less than 3% of GDP.
In 2022, the average budget deficits are forecast to fall to around 3¾% of GDP in both the EU and the euro area. The economic recovery and the unwinding of much of the discretionary policy support activated to combat the effects of the crisis are both forecast to drive the reduction in the budget deficit in 2022.
While in Bulgaria, Denmark, Spain, Croatia, Cyprus, Hungary, Poland, Portugal, Slovenia and Slovakia the debt ratio is expected to decrease in 2021, the aggregate debt-to-GDP ratio is projected to rise further, with a new peak of around 95% and 103% in the EU and the euro area, respectively, before decreasing slightly in 2022. Most Member States are still expected to record debt ratios above 60% of GDP in 2021.
Following the entry into force of the Recovery and Resilience Facility on 19 February 2021, Member States have submitted, or are preparing to submit, their Recovery and Resilience Plans to the Commission. The Commission’s forecast therefore includes the impact of those plans in its budgetary and macroeconomic projections. However, at the time of the cut-off date of the forecast (30 April 2021), details of some plans were still under discussion in a number of Member States. Working assumptions have been used for the preparation of the Commission forecasts, as follows:
̶Time profile of expenditure: by default the forecast assumes linear absorption of the full grant allocation over the facility’s lifetime, starting from the second half of 2021 and ending in 2026. This results in an absorption of 1/11 of the entire Recovery and Resilience Facility grant allocation in 2021 and 2/11 in 2022.
̶Composition of expenditure: by default the forecast assumes that expenditure to be financed by the facility is split between gross fixed capital formation (i.e. public investment) and capital transfers (which would predominantly support private investment).
̶The above assumptions only cover the absorption of the grant allocation of the Recovery and Resilience Facility.
For Member States where there was sufficiently detailed and credible information available on the (draft) Recovery and Resilience Plans at the cut-off date of the forecast, the forecast deviates from the default assumptions. 18
| Table 6: Public investment Percentage of GDP | ||||||
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |
| Belgium | 2.4 | 2.6 | 2.7 | 2.8 | 3.0 | 2.9 |
| Bulgaria | 2.3 | 3.1 | 3.4 | 4.5 | 4.2 | 4.2 |
| Czechia | 3.3 | 4.1 | 4.4 | 4.9 | 5.2 | 5.3 |
| Denmark | 3.4 | 3.4 | 3.2 | 3.6 | 3.7 | 3.7 |
| Germany | 2.2 | 2.4 | 2.5 | 2.7 | 2.8 | 2.8 |
| Estonia | 5.7 | 5.3 | 5.0 | 5.7 | 6.3 | 6.2 |
| Ireland | 1.8 | 2.1 | 2.4 | 2.7 | 2.9 | 3.0 |
| Greece | 4.5 | 3.2 | 2.5 | 3.0 | 4.9 | 5.8 |
| Spain | 2.0 | 2.2 | 2.1 | 2.5 | 2.5 | 2.4 |
| France | 3.3 | 3.4 | 3.7 | 3.8 | 3.9 | 3.9 |
| Croatia | 2.8 | 3.5 | 4.3 | 5.6 | 6.3 | 7.4 |
| Italy | 2.2 | 2.1 | 2.3 | 2.7 | 2.9 | 3.2 |
| Cyprus | 2.7 | 4.9 | 2.6 | 2.9 | 3.5 | 3.5 |
| Latvia | 4.6 | 5.6 | 5.0 | 5.7 | 6.2 | 6.1 |
| Lithuania | 3.2 | 3.2 | 3.1 | 4.1 | 3.9 | 3.9 |
| Luxembourg | 4.1 | 3.9 | 4.0 | 5.0 | 4.3 | 4.2 |
| Hungary | 4.5 | 5.8 | 6.2 | 6.4 | 6.4 | 6.6 |
| Malta | 2.4 | 3.3 | 3.9 | 4.5 | 5.6 | 5.3 |
| Netherlands | 3.4 | 3.4 | 3.4 | 3.4 | 3.9 | 3.7 |
| Austria | 3.1 | 3.1 | 3.1 | 3.4 | 3.6 | 3.5 |
| Poland | 3.8 | 4.7 | 4.3 | 4.4 | 4.7 | 4.9 |
| Portugal | 1.8 | 1.8 | 1.9 | 2.2 | 2.5 | 3.2 |
| Slovenia | 3.1 | 3.7 | 3.8 | 4.2 | 5.8 | 5.8 |
| Slovakia | 3.4 | 3.7 | 3.6 | 3.5 | 3.8 | 3.7 |
| Finland | 4.1 | 4.3 | 4.4 | 4.6 | 4.6 | 4.3 |
| Sweden | 4.6 | 4.9 | 4.9 | 5.1 | 5.0 | 5.0 |
| Source: Commission 2021 spring forecast |
4.2.1Belgium
Medium-term macroeconomic position: After a contraction of 6.3% in 2020, the economy is set to grow by 4.5% in 2021 and by 3.7% in 2022. Growth in 2021 is mainly driven by private consumption and investment. Economic activity is forecast to return to its annual 2019 level in 2022.
Medium-term budgetary position, including investment: The general government deficit is expected to fall from 9.4% of GDP in 2020 to 7.6% of GDP in 2021, and then to 4.9% of GDP in 2022. Government investment is estimated to increase from 2.8% of GDP in 2020 to 3% in 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 7.5% and 6% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. The discretionary budgetary measures adopted by the government in 2020 and 2021 are mostly temporary or matched by offsetting measures.
Medium-term debt position: The general government debt stood at 99.8% at end-2018 and at 98.1% at end-2019, before rising to 114.1% of GDP at end-2020. It is then projected to increase from 115.3% of GDP at end-2021 to 115.5% of GDP at end-2022. The debt sustainability analysis confirms the high risks in the medium term. According to the baseline 10-year projection, the general government debt ratio would stabilise, and start declining over the second half of the period, although remaining at a high level. The debt trajectory is sensitive to macroeconomic shocks. When taking into account a large range of possible temporary shocks to macroeconomic variables (through stochastic projections), it is probable that the debt ratio could be higher in 2025 than in 2020. Concerning other factors relevant for an overall assessment of debt sustainability, the lengthening of debt maturity in recent years, relatively stable financing sources (with a diversified and large investors’ base), and historically low borrowing costs supported by the Eurosystem’s interventions, contribute to mitigate the risks. In addition, the implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability. Moreover, gross financing needs are projected to decline. Risk-increasing factors are related to contingent liability risks stemming from the private sector, including via the possible materialisation of state guarantees granted to firms and self-employed during the COVID-19 crisis, even though this risk currently remains limited due to relatively low take-up so far.
Other factors put forward by the Member State: On 30 April 2021, Belgium provided additional relevant factors, namely that from 21 December 2018 to 1 October 2020, Belgium had, at federal level, several caretaking governments, and the commitment of the incoming government to pursue important structural reforms in order to enhance the composition of public expenditure and the sustainability of public finances. Reform plans mentioned in the letter concern the pension and tax systems, implementing spending reviews, and raising the level of public investment.
4.2.2Bulgaria
Medium-term macroeconomic position: After a 4.2% contraction in 2020, the economy is set to grow by 3.5% in 2021 and by 4.7% in 2022. Growth in 2021 is mainly driven by investment and private consumption. Economic activity is forecast to return to its annual 2019 level in 2022.
Medium-term budgetary position, including investment: The general government deficit is expected to fall from 3.4% of GDP in 2020 to 3.2% of GDP in 2021, and then to 1.9% of GDP in 2022. Government investment is estimated to decrease from 4.5% of GDP in 2020 to 4.2% in 2021, being larger than the government deficit in 2020 and 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 5.6% and 5.1% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. The discretionary budgetary measures adopted by the government in 2020 and 2021 are temporary or matched by offsetting measures.
Medium-term debt position: The general government debt stood at 22.3% at end-2018 and at 20.2% at end-2019, before rising to 25% of GDP at end-2020. It is then projected to decrease from 24.5% of GDP at end-2021 to 24% of GDP at end-2022. Overall, the debt sustainability analysis indicates low risks over the medium term. The implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability.
Other factors put forward by the Member State: The analysis presented in the previous sections already covers the key factors put forward by Bulgaria on 29 April 2021.
4.2.3Czechia
Medium-term macroeconomic position: After a 5.6% contraction in 2020, the economy is set to grow by 3.4% in 2021 and by 4.4% in 2022. Growth in 2021 is mainly driven by investment and net exports. Economic activity is forecast to return to its annual 2019 level in 2022.
Medium-term budgetary position, including investment: The general government deficit is expected to increase from 6.2% of GDP in 2020 to 8.5% of GDP in 2021, and then fall to 5.4% of GDP in 2022. Government investment is estimated to increase from 4.9% of GDP in 2020 to 5.2% in 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 6.4% and 8.7% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. Some of the discretionary measures adopted by the government in 2020 and 2021 do not appear to be temporary or matched by offsetting measures. Beyond the horizon of the Commission’s forecast, in 2023, the remaining impact of those non-temporary measures is preliminarily estimated at around 2% of GDP.
Medium-term debt position: The general government debt stood at 32.1% at end-2018 and at 30.3% at end-2019, before rising to 38.1% of GDP at end-2020. It is then projected to increase from 44.3% of GDP at end-2021 to 47.1% of GDP at end-2022. Overall, the debt sustainability analysis indicates medium risks over the medium term. The implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability.
Other factors put forward by the Member State: On 30 April 2021, Czechia provided additional relevant factors. The authorities consider the state of Czech public finances ahead of the pandemic, including fiscal buffers and low public debt, as relevant mitigating factors. In accordance with the amendments of the Act on Budgetary Responsibility Rules, consolidation of public finances will start in 2022, with a minimum fiscal effort of 0.5 percentage points per year.
4.2.4Denmark
Medium-term macroeconomic position: After a 2.7% contraction in 2020, the economy is set to grow by 2.9% in 2021 and by 3.5% in 2022. Growth in 2021 is mainly driven by private consumption and investment. Economic activity is forecast to return to its annual 2019 level in 2021.
Medium-term budgetary position, including investment: The general government deficit is expected to increase from 1.1% of GDP in 2020 to 2.1% of GDP in 2021, and then fall to 1.4% of GDP in 2022. Government investment is estimated to increase from 3.6% of GDP in 2020 to 3.7% in 2021, being larger than the government deficit in 2020 and 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 5.2% and 5.8% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. The discretionary budgetary measures adopted by the government in 2020 and 2021 are temporary or matched by offsetting measures.
Medium-term debt position: The general government debt stood at 34% at end-2018 and at 33.3% at end-2019, before rising to 42.2% of GDP at end-2020. It is then projected to decrease from 40.2% of GDP at end-2021 to 38.8% of GDP at end-2022. Overall, the debt sustainability analysis indicates low risks over the medium term. The implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability.
Other factors put forward by the Member State: The analysis presented in the previous sections already covers the key factors put forward by Denmark on 12 May 2021.
4.2.5Germany
Medium-term macroeconomic position: After a 4.9% contraction in 2020, the economy is set to grow by 3.4% in 2021 and by 4.1% in 2022. Growth in 2021 is mainly driven by net exports and investment. Economic activity is forecast to return to its annual 2019 level in 2022.
Medium-term budgetary position, including investment: The general government deficit is expected to increase from 4.2% of GDP in 2020 to 7.5% of GDP in 2021, and then fall to 2.5% of GDP in 2022. Government investment is estimated to increase from 2.7% of GDP in 2020 to 2.8% in 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 5.9% and 9.2% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. Some of the discretionary measures adopted by the government in 2020 and 2021 do not appear to be temporary or matched by offsetting measures. Beyond the horizon of the Commission’s forecast, in 2023, the remaining impact of those non-temporary measures is preliminarily estimated at around 1% of GDP.
Germany is experiencing imbalances in the sense of the Macroeconomic Imbalance Procedure. The current account surplus persists at high levels reflecting a subdued level of investment relative to savings and has cross-border relevance. Looking forward, the Recovery and Resilience Plan provides an opportunity to address imbalances, investment and reforms needs.
Medium-term debt position: The general government debt stood at 61.8% at end-2018 and at 59.7% at end-2019, before rising to 69.8% of GDP at end-2020. It is then projected to decrease from 73.1% of GDP at end-2021 to 72.2% of GDP at end-2022. Overall, the debt sustainability analysis indicates low risks over the medium term. The implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability.
Other factors put forward by the Member State: On 3 May 2021, Germany provided additional relevant factors, namely that the planned budget assumes a complete execution of all the support measures.
4.2.6Estonia
Medium-term macroeconomic position: After a 2.9% contraction in 2020, the economy is set to grow by 2.8% in 2021 and by 5% in 2022. Growth in 2021 is mainly driven by private consumption and net exports. Economic activity is forecast to return to its annual 2019 level in 2022.
Medium-term budgetary position, including investment: The general government deficit is expected to increase from 4.9% of GDP in 2020 to 5.6% of GDP in 2021, and then fall to 3.3% of GDP in 2022. Government investment is estimated to increase from 5.7% of GDP in 2020 to 6.3% in 2021, being larger than the government deficit in 2020 and 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 5% and 5.6% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. Some of the discretionary measures adopted by the government in 2020 and 2021 do not appear to be temporary or matched by offsetting measures. Beyond the horizon of the Commission’s forecast, in 2023, the remaining impact of those non-temporary measures is preliminarily estimated at around 1% of GDP.
Medium-term debt position: The general government debt stood at 8.2% at end-2018 and at 8.4% at end-2019, before rising to 18.2% of GDP at end-2020. It is then projected to increase from 21.3% of GDP at end-2021 to 24% of GDP at end-2022. Overall, the debt sustainability analysis indicates low risks over the medium term. The implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability.
Other factors put forward by the Member State: The analysis presented in the previous sections already covers the key factors put forward by Estonia on 29 April 2021.
4.2.7Ireland
Medium-term macroeconomic position: This is the only Member State in the EU in which the economy did not contract in 2020, with GDP just decelerating to a 3.4% growth rate. The economy is set to grow further by 4.6% in 2021 and by 5% in 2022. Growth in 2021 is mainly driven by investment and private consumption. However, annual ‘modified domestic demand’ 19 , a measure that better reflects the underlying domestic economy, indicates a contraction by 5.4% in 2020. According to this measure, the economy is set to grow by 4.3% in 2021 and by 7% in 2022, and economic activity is forecast to return to its annual 2019 level in 2022.
Medium-term budgetary position, including investment: The general government deficit is expected to remain stable at 5% of GDP in 2021, and then fall to 2.9% of GDP in 2022. Government investment is estimated to increase from 2.7% of GDP in 2020 to 2.9% in 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 5.7% of GDP in both years, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. The discretionary budgetary measures adopted by the government in 2020 and 2021 are mostly temporary or matched by offsetting measures.
Ireland is experiencing imbalances in the sense of the Macroeconomic Imbalance Procedure. Vulnerabilities relate to large private and government debts and net external liabilities remain. Looking forward, the Recovery and Resilience Plan provides an opportunity to address imbalances, investment and reforms needs.
Medium-term debt position: The general government debt stood at 63% at end-2018 and at 57.4% at end-2019, before rising to 59.5% of GDP at end-2020. It is then projected to decrease from 61.4% of GDP at end-2021 to 59.7% of GDP at end-2022. Overall, the debt sustainability analysis indicates low risks over the medium term. The implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability.
Other factors put forward by the Member State: The analysis presented in the previous sections already covers the key factors put forward by Ireland on 30 April 2021.
4.2.8Greece
Medium-term macroeconomic position: After an 8.2% contraction in 2020, the economy is set to grow by 4.1% in 2021 and by 6% in 2022. Growth in 2021 is mainly driven by private consumption and investment. Economic activity is forecast to return to its annual 2019 level in 2022.
Medium-term budgetary position, including investment: The general government deficit is expected to increase from 9.7% of GDP in 2020 to 10% of GDP in 2021, and then fall to 3.2% of GDP in 2022. Government investment is estimated to increase from 3% of GDP in 2020 to 4.9% in 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 11.3% and 11.7% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. The discretionary budgetary measures adopted by the government in 2020 and 2021, and announced for 2022, are temporary or matched by offsetting measures.
Greece is experiencing excessive imbalances in the sense of the Macroeconomic Imbalance Procedure. Vulnerabilities relate to high government debt, incomplete external rebalancing and high non-performing loans, in a context of high unemployment and low potential growth. Looking forward, the Recovery and Resilience Plan provides an opportunity to address imbalances, investment and reforms needs.
Medium-term debt position: The general government debt stood at 186.2% at end-2018 and at 180.5% at end-2019, before rising to 205.6% of GDP at end-2020. It is then projected to decrease from 208.8% of GDP at end-2021 to 201.5% of GDP at end-2022. Greece is under enhanced surveillance. 20 The debt sustainability analysis confirms the high risks in the medium term. According to the baseline 10-year projection, the general government debt ratio would decline over the period, although remaining at a high level. In particular, the debt trajectory is sensitive to macroeconomic shocks over the medium term. When taking into account a large range of possible temporary shocks to macroeconomic variables (through stochastic projections), it is probable that the debt ratio could be higher in 2025 than in 2020. In addition, the debt sustainability analysis presented in the 10th enhanced surveillance report shows increased sustainability risks under alternative scenarios. 21 Concerning other factors relevant for an overall assessment of debt sustainability, the composition and maturity profile of government debt mitigates debt vulnerabilities, while additional risks could emerge from contingent liabilities. A large share of debt is financed at low rates with long maturities, which, along with the high cash reserves of the Greek general government, effectively cushion the impact of short-term fluctuations in financing costs. The debt sustainability analysis presented in the 10th enhanced surveillance report does not take into account the long-term growth impact of the reforms and investments presented in the Recovery and Resilience Plan, which may further mitigate sustainability risks. By contrast, there are risks stemming from the uncertainty related to contingent liabilities vis-à-vis the private sector, including the state guarantees granted to firms and self-employed during the pandemic or in the context of the Hercules scheme.
Other factors put forward by the Member State: The analysis presented in the previous sections already covers the key factors put forward by Greece on 29 April 2021.
4.2.9Spain
Medium-term macroeconomic position: After a 10.8% contraction in 2020, the economy is set to grow by 5.9% in 2021 and by 6.8% in 2022. Growth in 2021 is mainly driven by private consumption and investment. Economic activity is forecast to return to its annual 2019 level in 2022.
Medium-term budgetary position, including investment: The general government deficit is expected to fall from 11% of GDP in 2020 to 7.6% of GDP in 2021, and then to 5.2% of GDP in 2022. Government investment is estimated to remain stable at 2.5% of GDP in 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 8.1% and 4.8% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. The discretionary budgetary measures adopted by the government in 2020 and 2021 are mostly temporary or matched by offsetting measures.
Spain is experiencing imbalances in the sense of the Macroeconomic Imbalance Procedure. Vulnerabilities relate to high external and internal debt, both government and private, remain, in a context of high unemployment and have cross-border relevance. Looking forward, the Recovery and Resilience Plan provides an opportunity to address imbalances, investment and reforms needs.
Medium-term debt position: The general government debt stood at 97.4% at end-2018 and at 95.5% at end-2019, before rising to 120% of GDP at end-2020. It is then projected to decrease from 119.6% of GDP at end-2021 to 116.9% of GDP at end-2022. The debt sustainability analysis confirms the high risks in the medium term. According to the baseline 10-year projection, the general government debt ratio would stabilise, and slightly decline over the second half of the period, although remaining at a high level. The debt trajectory is sensitive to macroeconomic shocks. When taking into account a large range of possible temporary shocks to macroeconomic variables (through stochastic projections), it is probable that the debt ratio could be higher in 2025 than in 2020. Concerning other factors relevant for an overall assessment of debt sustainability, the lengthening of debt maturity in recent years, relatively stable financing sources (with a diversified and large investors’ base), and historically low borrowing costs supported by the Eurosystem’s interventions, contribute to mitigate the risks. In addition, the implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability. Moreover, gross financing needs are projected to decline. Risk-increasing factors are related to contingent liability risks stemming from the private sector, including via the possible materialisation of state guarantees granted to firms and self-employed during the COVID-19 crisis.
Other factors put forward by the Member State: On 30 April 2021, Spain provided additional relevant factors, namely i) that as of the statistical year 2020, SAREB, the asset management company, is classified in general government adding around 1 percentage point to the deficit ratio and 3 percentage points to the debt ratio in 2020; and ii) that Spain has also implemented revenue measures, in particular, new taxes on financial transactions, certain digital services and single-use plastics, which are expected to strengthen public finances in the medium term.
4.2.10France
Medium-term macroeconomic position: After an 8.1% contraction in 2020, the economy is set to grow by 5.7% in 2021 and by 4.2% in 2022. Growth in 2021 is mainly driven by investment and private consumption. Economic activity is forecast to return to its annual 2019 level in 2022.
Medium-term budgetary position, including investment: The general government deficit is expected to fall from 9.2% of GDP in 2020 to 8.5% of GDP in 2021, and then to 4.7% of GDP in 2022. Government investment is estimated to increase from 3.8% of GDP in 2020 to 3.9% in 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 6.2% and 5.7% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. Some of the discretionary measures adopted by the government in 2020 and 2021, and announced for 2022, do not appear to be temporary or matched by offsetting measures. Beyond the horizon of the Commission’s forecast, in 2023, the remaining impact of those non-temporary measures is preliminarily estimated at around 1% of GDP.
France is experiencing imbalances in the sense of the Macroeconomic Imbalance Procedure. Vulnerabilities relate to high government debt, weak competitiveness and low productivity growth, which have cross-border relevance. Looking forward, the Recovery and Resilience Plan provides an opportunity to address imbalances, investment and reforms needs.
Medium-term debt position: The general government debt stood at 98% at end-2018 and at 97.6% at end-2019, before rising to 115.7% of GDP at end-2020. It is then projected to decrease from 117.4% of GDP at end-2021 to 116.4% of GDP at end-2022. The debt sustainability analysis confirms the high risks in the medium term. According to the baseline 10-year projection, the general government debt ratio would stabilise, and slightly decline over the second half of the period, although remaining at a high level. The debt trajectory is sensitive to macroeconomic shocks. When taking into account a large range of possible temporary shocks to macroeconomic variables (through stochastic projections), it is probable that the debt ratio could be higher in 2025 than in 2020. Concerning other factors relevant for an overall assessment of debt sustainability, the lengthening of debt maturity in recent years, relatively stable financing sources (with a diversified and large investors’ base), and historically low borrowing costs supported by the Eurosystem’s interventions, contribute to mitigate the risks. In addition, the implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability. Moreover, gross financing needs are projected to decline. Risk-increasing factors are related to contingent liability risks stemming from the private sector, including via the possible materialisation of state guarantees granted to firms and self-employed during the COVID-19 crisis.
Other factors put forward by the Member State: On 30 April 2021, France provided additional relevant factors, namely the containment in the increase of general government expenditure in recent years, which is estimated at an average increase in real terms of 0.7% between 2017 and 2019.
4.2.11Croatia
Medium-term macroeconomic position: After an 8% contraction in 2020, the economy is set to grow by 5% in 2021 and by 6.1% in 2022. Growth in 2021 is mainly driven by private consumption and investment. Economic activity is forecast to return to its annual 2019 level in 2022.
Medium-term budgetary position, including investment: The general government deficit is expected to fall from 7.4% of GDP in 2020 to 4.6% of GDP in 2021, and then to 3.2% of GDP in 2022. Government investment is estimated to increase from 5.6% of GDP in 2020 to 6.3% in 2021, with the latter being larger than the government deficit in 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 8.1% and 5.3% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. The discretionary budgetary measures adopted by the government in 2020 and 2021 are mostly temporary or matched by offsetting measures.
Croatia is experiencing imbalances in the sense of the Macroeconomic Imbalance Procedure. Vulnerabilities relate to government, private and external debts, in a context of low potential growth. Looking forward, the Recovery and Resilience Plan provides an opportunity to address imbalances, investment and reforms needs.
Medium-term debt position: The general government debt stood at 74.3% at end-2018 and at 72.8% at end-2019, before rising to 88.7% of GDP at end-2020. It is then projected to decrease from 85.6% of GDP at end-2021 to 82.9% of GDP at end-2022. Overall, the debt sustainability analysis indicates medium risks over the medium term. The implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability.
Other factors put forward by the Member State: The analysis presented in the previous sections already covers the key factors put forward by Croatia on 30 April 2021.
4.2.12Italy
Medium-term macroeconomic position: After an 8.9% contraction in 2020, the economy is set to grow by 4.2% in 2021 and by 4.4% in 2022. Growth in 2021 is mainly driven by private consumption and investment. Economic activity is not forecast to return to its annual pre-crisis level in 2022, with the level of GDP in 2022 still projected to be 0.9% lower than in 2019.
Medium-term budgetary position, including investment: The general government deficit is expected to increase from 9.5% of GDP in 2020 to 11.7% of GDP in 2021, and then fall to 5.8% of GDP in 2022. Government investment is estimated to increase from 2.7% of GDP in 2020 to 2.9% in 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 8% and 10.2% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. Some of the discretionary measures adopted by the government in 2020 and 2021 do not appear to be temporary or matched by offsetting measures. Beyond the horizon of the Commission’s forecast, in 2023, the remaining impact of those non-temporary measures is preliminarily estimated at around 1% of GDP.
Italy is experiencing excessive imbalances in the sense of the Macroeconomic Imbalance Procedure. Vulnerabilities relate to high government debt and protracted weak productivity dynamics, which have cross-border relevance in a context of labour market and banking sector fragilities. Looking forward, the Recovery and Resilience Plan provides an opportunity to address imbalances, investment and reforms needs.
Medium-term debt position: The general government debt stood at 134.4% at end-2018 and at 134.6% at end-2019, before rising to 155.8% of GDP at end-2020. It is then projected to decrease from 159.8% of GDP at end-2021 to 156.6% of GDP at end-2022. The debt sustainability analysis confirms the high risks in the medium term. According to the baseline 10-year projection, the general government debt ratio would stabilise over the next five years, and decline over the second half of the period, although remaining at a high level. The debt trajectory is sensitive to macroeconomic shocks. When taking into account a large range of possible temporary shocks to macroeconomic variables (through stochastic projections), it is probable that the debt ratio could be higher in 2025 than in 2020. Concerning other factors relevant for an overall assessment of debt sustainability, the lengthening of debt maturity in recent years, relatively stable financing sources (with a diversified and large investors’ base), and historically low borrowing costs supported by the Eurosystem’s interventions, contribute to mitigate the risks. In addition, the implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability. Moreover, gross financing needs are projected to decline. Risk-increasing factors are related to contingent liability risks stemming from the private sector, including via the possible materialisation of state guarantees granted to firms during the COVID-19 crisis.
Other factors put forward by the Member State: On 30 April 2021, Italy provided additional relevant factors, namely that the substantial assets held by the general government and their role for its overall creditworthiness, the comparatively low stock of contingent liabilities even after the increase caused by the COVID-19 crisis, and that the stock of debt held by the market can be expected to be substantially lower than the overall level of debt in the coming years.
4.2.13Cyprus
Medium-term macroeconomic position: After a 5.1% contraction in 2020, the economy is set to grow by 3.1% in 2021 and by 3.8% in 2022. Growth in 2021 is mainly driven by private consumption and net exports. Economic activity is forecast to return to its annual 2019 level in 2022.
Medium-term budgetary position, including investment: The general government deficit is expected to fall from 5.7% of GDP in 2020 to 5.1% of GDP in 2021, and then to 2% of GDP in 2022. Government investment is estimated to increase from 2.9% of GDP in 2020 to 3.5% in 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 7.6% and 6.8% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. The discretionary budgetary measures adopted by the government in 2020 and 2021 are mostly temporary or matched by offsetting measures.
Cyprus is experiencing excessive imbalances in the sense of the Macroeconomic Imbalance Procedure. Vulnerabilities relate to high stocks of external, government, and private debt, and still high non-performing loans, alongside a substantial current account deficit. Looking forward, the Recovery and Resilience Plan provides an opportunity to address imbalances, investment and reforms needs.
Medium-term debt position: The general government debt stood at 99.2% at end-2018 and at 94% at end-2019, before rising to 118.2% of GDP at end-2020. It is then projected to decrease from 112.2% of GDP at end-2021 to 106.6% of GDP at end-2022. Overall, the debt sustainability analysis indicates medium risks over the medium term. The implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability.
Other factors put forward by the Member State: The analysis presented in the previous sections already covers the key factors put forward by Cyprus on 29 April 2021.
4.2.14Latvia
Medium-term macroeconomic position: After a 3.6% contraction in 2020, the economy is set to grow by 3.5% in 2021 and by 6% in 2022. Growth in 2021 is mainly driven by private consumption and investment. Economic activity is forecast to return to its annual 2019 level in 2022.
Medium-term budgetary position, including investment: The general government deficit is expected to increase from 4.5% of GDP in 2020 to 7.3% of GDP in 2021, and then fall to 2% of GDP in 2022. Government investment is estimated to increase from 5.7% of GDP in 2020 to 6.2% in 2021, with the first being larger than the government deficit in 2020. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 4% and 6.8% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. Some of the discretionary measures adopted by the government in 2020 and 2021 do not appear to be temporary or matched by offsetting measures. Beyond the horizon of the Commission’s forecast, in 2023, the remaining impact of those non-temporary measures is preliminarily estimated at around 1% of GDP.
Medium-term debt position: The general government debt stood at 37.1% at end-2018 and at 37% at end-2019, before rising to 43.5% of GDP at end-2020. It is then projected to decrease from 47.3% of GDP at end-2021 to 46.4% of GDP at end-2022. Overall, the debt sustainability analysis indicates low risks over the medium term. The implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability.
Other factors put forward by the Member State: The analysis presented in the previous sections already covers the key factors put forward by Latvia on 30 April 2021.
4.2.15Lithuania
Medium-term macroeconomic position: After a 0.9% contraction in 2020, the economy is set to grow by 2.9% in 2021 and by 3.9% in 2022. Growth in 2021 is mainly driven by private consumption and investment. Economic activity is forecast to return to its annual 2019 level in 2021.
Medium-term budgetary position, including investment: The general government deficit is expected to increase from 7.4% of GDP in 2020 to 8.2% of GDP in 2021, and then fall to 6% of GDP in 2022. Government investment is estimated to decrease from 4.1% of GDP in 2020 to 3.9% in 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 8% and 9% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. Some of the discretionary measures adopted by the government in 2020 and 2021 do not appear to be temporary or matched by offsetting measures. Beyond the horizon of the Commission’s forecast, in 2023, the remaining impact of those non-temporary measures is preliminarily estimated at around 1% of GDP.
Medium-term debt position: The general government debt stood at 33.7% at end-2018 and at 35.9% at end-2019, before rising to 47.3% of GDP at end-2020. It is then projected to increase from 51.9% of GDP at end-2021 to 54.1% of GDP at end-2022. Overall, the debt sustainability analysis indicates medium risks over the medium term. The implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability.
Other factors put forward by the Member State: The analysis presented in the previous sections already covers the key factors put forward by Lithuania on 30 April 2021.
4.2.16Luxembourg
Medium-term macroeconomic position: After a 1.3% contraction in 2020, the economy is set to grow by 4.5% in 2021 and by 3.3% in 2022. Growth in 2021 is mainly driven by private consumption and net exports. Economic activity is forecast to return to its annual 2019 level in 2021.
Medium-term budgetary position, including investment: The general government deficit is expected to fall from 4.1% of GDP in 2020 to 0.3% of GDP in 2021, and then to 0.1% of GDP in 2022. Government investment is estimated to decrease from 5% of GDP in 2020 to 4.3% in 2021, being larger than the government deficit in 2020 and 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 6.5% and 2.7% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. The discretionary budgetary measures adopted by the government in 2020 and 2021 are mostly temporary or matched by offsetting measures.
Medium-term debt position: The general government debt stood at 21% at end-2018 and at 22% at end-2019, before rising to 24.9% of GDP at end-2020. It is then projected to decrease from 27% of GDP at end-2021 to 26.8% of GDP at end-2022. Overall, the debt sustainability analysis indicates low risks over the medium term. The implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability.
Other factors put forward by the Member State: The analysis presented in the previous sections already covers the key factors put forward by Luxembourg on 30 April 2021.
4.2.17Hungary
Medium-term macroeconomic position: After a 5% contraction in 2020, the economy is set to grow by 5% in 2021 and by 5.5% in 2022. Growth in 2021 is mainly driven by investment and private consumption. Economic activity is forecast to return to its annual 2019 level in 2022.
Medium-term budgetary position, including investment: The general government deficit is expected to fall from 8.1% of GDP in 2020 to 6.8% of GDP in 2021, and then to 4.5% of GDP in 2022. Government investment is estimated to remain stable at 6.4% of GDP in 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 5.9% and 4.5% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. Some of the discretionary measures adopted by the government in 2020 and 2021 do not appear to be temporary or matched by offsetting measures. Beyond the horizon of the Commission’s forecast, in 2023, the remaining impact of those non-temporary measures is preliminarily estimated at around 2% of GDP.
Medium-term debt position: The general government debt stood at 69.1% at end-2018 and at 65.5% at end-2019, before rising to 80.4% of GDP at end-2020. It is then projected to decrease from 78.6% of GDP at end-2021 to 77.1% of GDP at end-2022. Overall, the debt sustainability analysis indicates medium risks over the medium term. The implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability.
Other factors put forward by the Member State: The analysis presented in the previous sections already covers the key factors put forward by Hungary on 30 April 2021.
4.2.18Malta
Medium-term macroeconomic position: After a 7% contraction in 2020, the economy is set to grow by 4.6% in 2021 and by 6.1% in 2022. Growth in 2021 is mainly driven by private consumption and investment. Economic activity is forecast to return to its annual 2019 level in 2022.
Medium-term budgetary position, including investment: The general government deficit is expected to increase from 10.1% of GDP in 2020 to 11.8% of GDP in 2021, and then fall to 5.5% of GDP in 2022. Government investment is estimated to increase from 4.5% of GDP in 2020 to 5.6% in 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 10.6% and 12.1% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. The discretionary budgetary measures adopted by the government in 2020 and 2021 are mostly temporary or matched by offsetting measures.
Medium-term debt position: The general government debt stood at 44.8% at end-2018 and at 42% at end-2019, before rising to 54.3% of GDP at end-2020. It is then projected to increase from 64.7% of GDP at end-2021 to 65.5% of GDP at end-2022. Overall, the debt sustainability analysis indicates medium risks over the medium term. The implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability.
Other factors put forward by the Member State: The analysis presented in the previous sections already covers the key factors put forward by Malta on 10 May 2021.
4.2.19The Netherlands
Medium-term macroeconomic position: After a 3.7% contraction in 2020, the economy is set to grow by 2.3% in 2021 and by 3.6% in 2022. Growth in 2021 is mainly driven by public consumption and net exports. Economic activity is forecast to return to its annual 2019 level in 2022.
Medium-term budgetary position, including investment: The general government deficit is expected to increase from 4.3% of GDP in 2020 to 5% of GDP in 2021, and then fall to 1.8% of GDP in 2022. Government investment is estimated to increase from 3.4% of GDP in 2020 to 3.9% in 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 6.1% and 6.9% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. Some of the discretionary measures adopted by the government in 2020 and 2021 do not appear to be temporary or matched by offsetting measures. Beyond the horizon of the Commission’s forecast, in 2023, the remaining impact of those non-temporary measures is preliminarily estimated at around 1% of GDP.
The Netherlands is experiencing imbalances in the sense of the Macroeconomic Imbalance Procedure. Private debt and the current account surplus remain high, and have cross-border relevance. Looking forward, the Recovery and Resilience Plan provides an opportunity to address imbalances, investment and reforms needs.
Medium-term debt position: The general government debt stood at 52.4% at end-2018 and at 48.7% at end-2019, before rising to 54.5% of GDP at end-2020. It is then projected to decrease from 58% of GDP at end-2021 to 56.8% of GDP at end-2022. Overall, the debt sustainability analysis indicates low risks over the medium term. The implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability.
Other factors put forward by the Member State: The analysis presented in the previous sections already covers the key factors put forward by the Netherlands on 4 May 2021.
4.2.20Austria
Medium-term macroeconomic position: After a 6.6% contraction in 2020, the economy is set to grow by 3.4% in 2021 and by 4.3% in 2022. Growth in 2021 is mainly driven by private consumption and investment. Economic activity is forecast to return to its annual 2019 level in 2022.
Medium-term budgetary position, including investment: The general government deficit is expected to fall from 8.9% of GDP in 2020 to 7.6% of GDP in 2021, and then to 3% of GDP in 2022. Government investment is estimated to increase from 3.4% of GDP in 2020 to 3.6% in 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 9.6% and 8.4% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. Some of the discretionary measures adopted by the government in 2020 and 2021 do not appear to be temporary or matched by offsetting measures. Beyond the horizon of the Commission’s forecast, in 2023, the remaining impact of those non-temporary measures is preliminarily estimated at around 1% of GDP.
Medium-term debt position: The general government debt stood at 74% at end-2018 and at 70.5% at end-2019, before rising to 83.9% of GDP at end-2020. It is then projected to decrease from 87.2% of GDP at end-2021 to 85% of GDP at end-2022. Overall, the debt sustainability analysis indicates medium risks over the medium term. The implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability.
Other factors put forward by the Member State: The analysis presented in the previous sections already covers the key factors put forward by Austria on 28 April 2021.
4.2.21Poland
Medium-term macroeconomic position: After a 2.7% contraction in 2020, the economy is set to grow by 4% in 2021 and by 5.4% in 2022. Growth in 2021 is mainly driven by private consumption and investment. Economic activity is forecast to return to its annual 2019 level in 2021.
Medium-term budgetary position, including investment: The general government deficit is expected to fall from 7% of GDP in 2020 to 4.3% of GDP in 2021, and then to 2.3% of GDP in 2022. Government investment is estimated to increase from 4.4% of GDP in 2020 to 4.7% in 2021, with the latter being larger than the government deficit in 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 6.4% and 3.7% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. The discretionary budgetary measures adopted by the government in 2020 and 2021 are temporary or matched by offsetting measures.
Medium-term debt position: The general government debt stood at 48.8% at end-2018 and at 45.6% at end-2019, before rising to 57.5% of GDP at end-2020. It is then projected to decrease from 57.1% of GDP at end-2021 to 55.1% of GDP at end-2022. Overall, the debt sustainability analysis indicates low risks over the medium term. The implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability.
Other factors put forward by the Member State: On 30 April 2021, Poland provided additional relevant factors, namely that the increase in the debt-to-GDP ratio was driven not only by the deficit but also by an issuance of bonds by the Polish Development Fund in the framework of the policy response.
4.2.22Portugal
Medium-term macroeconomic position: After a 7.6% contraction in 2020, the economy is set to grow by 3.9% in 2021 and by 5.1% in 2022. Growth in 2021 is mainly driven by private consumption and investment. Economic activity is forecast to return to its annual 2019 level in 2022.
Medium-term budgetary position, including investment: The general government deficit is expected to fall from 5.7% of GDP in 2020 to 4.7% of GDP in 2021, and then to 3.4% of GDP in 2022. Government investment is estimated to increase from 2.2% of GDP in 2020 to 2.5% in 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 6% and 5.1% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. Some of the discretionary measures adopted by the government in 2020 and 2021 do not appear to be temporary or matched by offsetting measures. Beyond the horizon of the Commission’s forecast, in 2023, the remaining impact of those non-temporary measures is preliminarily estimated at around 1% of GDP.
Portugal is experiencing imbalances in the sense of the Macroeconomic Imbalance Procedure. Vulnerabilities relate to large stocks of net external liabilities, private and government debt, and non-performing loans remain high, against a backdrop of low productivity growth. Looking forward, the Recovery and Resilience Plan provides an opportunity to address imbalances, investment and reforms needs.
Medium-term debt position: The general government debt stood at 121.5% at end-2018 and at 116.8% at end-2019, before rising to 133.6% of GDP at end-2020. It is then projected to decrease from 127.2% of GDP at end-2021 to 122.3% of GDP at end-2022. The debt sustainability analysis confirms the high risks in the medium term. According to the baseline 10-year projection, the general government debt ratio would decline over the projection period, although remaining at a high level. The debt trajectory is sensitive to macroeconomic shocks. When taking into account a large range of possible temporary shocks to macroeconomic variables (through stochastic projections), it is probable that the debt ratio could be higher in 2025 than in 2020. Concerning other factors relevant for an overall assessment of debt sustainability, the lengthening of debt maturity in recent years, relatively stable financing sources (with a diversified and large investors’ base), the gradual smoothening of the public debt redemption profile and historically low borrowing costs supported by the Eurosystem’s interventions, contribute to mitigate the risks. In addition, the implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability. Moreover, the treasury reported an accumulation of currency and deposits by 4.7% of GDP in 2020, while gross financing needs are projected to decline. Risk-increasing factors are related to contingent liability risks stemming from some public corporations and the private sector, including via the possible materialisation of state guarantees granted to firms during the COVID-19 crisis.
Other factors put forward by the Member State: On 30 April 2021, Portugal provided additional relevant factors. In their letter, the Portuguese authorities stressed the positive evolution of Portugal’s budgetary position in the years running up to the outbreak of the COVID-19 pandemic, with the general government balance having achieved a surplus in 2019 and the general government debt-to-GDP ratio having remained on a steady downward path over the period 2016-2019. Among other considerations, the Portuguese authorities also referred to the asymmetric nature of the impacts stemming from the crisis in view of country-specific features. For Portugal, this particularly relates to its large hospitality sector, which was strongly affected by disruptions in foreign tourism.
4.2.23Slovenia
Medium-term macroeconomic position: After a 5.5% contraction in 2020, the economy is set to grow by 4.9% in 2021 and by 5.1% in 2022. Growth in 2021 is mainly driven by private consumption and investment. Economic activity is forecast to return to its annual 2019 level in 2022.
Medium-term budgetary position, including investment: The general government deficit is expected to increase from 8.4% of GDP in 2020 to 8.5% of GDP in 2021, and then fall to 4.7% of GDP in 2022. Government investment is estimated to increase from 4.2% of GDP in 2020 to 5.8% in 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 9% and 9.1% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. The discretionary budgetary measures adopted by the government in 2020 and 2021 are mostly temporary or matched by offsetting measures.
Medium-term debt position: The general government debt stood at 70.3% at end-2018 and at 65.6% at end-2019, before rising to 80.8% of GDP at end-2020. It is then projected to decrease from 79% of GDP at end-2021 to 76.7% of GDP at end-2022. Overall, the debt sustainability analysis indicates medium risks over the medium term. The implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability.
Other factors put forward by the Member State: The analysis presented in the previous sections already covers the key factors put forward by Slovenia on 30 April 2021.
4.2.24Slovakia
Medium-term macroeconomic position: After a 4.8% contraction in 2020, the economy is set to grow by 4.8% in 2021 and by 5.2% in 2022. Growth in 2021 is mainly driven by investment and net exports. Economic activity is forecast to return to its annual 2019 level in 2022.
Medium-term budgetary position, including investment: The general government deficit is expected to increase from 6.2% of GDP in 2020 to 6.5% of GDP in 2021, and then fall to 4.1% of GDP in 2022. Government investment is estimated to increase from 3.5% of GDP in 2020 to 3.8% in 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 4.8% and 5.2% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. Some of the discretionary measures adopted by the government in 2020 and 2021 do not appear to be temporary or matched by offsetting measures. Beyond the horizon of the Commission’s forecast, in 2023, the remaining impact of those non-temporary measures is preliminarily estimated at around 1% of GDP.
Medium-term debt position: The general government debt stood at 49.6% at end-2018 and at 48.2% at end-2019, before rising to 60.6% of GDP at end-2020. It is then projected to decrease from 59.5% of GDP at end-2021 to 59% of GDP at end-2022. Overall, the debt sustainability analysis indicates medium risks over the medium term. The implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability.
Other factors put forward by the Member State: The analysis presented in the previous sections already covers the key factors put forward by Slovakia on 28 April 2021.
4.2.25Finland
Medium-term macroeconomic position: After a 2.8% contraction in 2020, the economy is set to grow by 2.7% in 2021 and by 2.8% in 2022. Growth in 2021 is mainly driven by domestic demand, notably public and private consumption. Economic activity is forecast to return to its annual 2019 level in 2022.
Medium-term budgetary position, including investment: The general government deficit is expected to fall from 5.4% of GDP in 2020 to 4.6% of GDP in 2021, and then to 2.1% of GDP in 2022. Government investment is estimated to remain stable at 4.6% of GDP in 2021, being almost equal to the government deficit in 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 4.6% and 4% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. The discretionary budgetary measures adopted by the government in 2020 and 2021 are temporary or matched by offsetting measures.
Medium-term debt position: The general government debt stood at 59.7% at end-2018 and at 59.5% at end-2019, before rising to 69.2% of GDP at end-2020. It is then projected to decrease from 71% of GDP at end-2021 to 70.1% of GDP at end-2022. Overall, the debt sustainability analysis indicates low risks over the medium term. The implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability.
Other factors put forward by the Member State: On 30 April 2021, Finland provided additional relevant factors, namely its commitment to decide on necessary structural measures to manage long-term debt sustainability challenges, outlined inter alia in the recently adopted sustainability roadmap until 2030. The government also recalled that it can use its strong net asset position to promote growth and thereby the long-term sustainability of the economy.
4.2.26Sweden
Medium-term macroeconomic position: After a 2.8% contraction in 2020, the economy is set to grow by 4.4% in 2021 and by 3.3% in 2022. Growth in 2021 is mainly driven by domestic demand, notably public and private consumption. Economic activity is forecast to return to its annual 2019 level in 2021.
Medium-term budgetary position, including investment: The general government deficit is expected to increase from 3.1% of GDP in 2020 to 3.3% of GDP in 2021, and then fall to 0.5% of GDP in 2022. Government investment is estimated to decrease from 5.1% of GDP in 2020 to 5.0% in 2021, being larger than the government deficit in 2020 and 2021. Nationally financed fiscal support in 2020 and 2021 – as measured by the change in the primary balance compared with the pre-crisis level (2019) – is estimated at 3.8% and 4% of GDP respectively, including discretionary budgetary measures and the operation of the automatic stabilisers. The measures taken in 2020 and 2021 have been in line with the Council Recommendation of 20 July 2020. Some of the discretionary measures adopted by the government in 2020 and 2021, and announced for 2022, do not appear to be temporary or matched by offsetting measures. Beyond the horizon of the Commission’s forecast, in 2023, the remaining impact of those non-temporary measures is preliminarily estimated at around 1% of GDP.
Sweden is experiencing imbalances in the sense of the Macroeconomic Imbalance Procedure. Vulnerabilities relate to high and rising household debt and overvaluation risks in the housing market remain. Looking forward, the Recovery and Resilience Plan provides an opportunity to address imbalances, investment and reforms needs.
Medium-term debt position: The general government debt stood at 38.9% at end-2018 and at 35% at end-2019, before rising to 39.9% of GDP at end-2020. It is then projected to decrease from 40.8% of GDP at end-2021 to 39.4% of GDP at end-2022. Overall, the debt sustainability analysis indicates low risks over the medium term. The implementation of reforms and investments under the Next Generation EU, notably the Recovery and Resilience Facility, is expected to have a substantial positive and long-lasting impact on GDP growth in the coming years, which, ceteris paribus, should contribute to strengthening debt sustainability.
Other factors put forward by the Member State: On 29 April 2021, Sweden informed the Commission that it will not provide additional relevant factors.
5.Conclusions
The severe economic downturn resulting from the COVID-19 pandemic led to a steep rise in general government deficits and debt in all Member States in 2020. In this context, the general escape clause of the Stability and Growth Pact was activated and Member States have been encouraged to pursue a supportive fiscal stance to fight the pandemic, while safeguarding fiscal sustainability in the medium term.
In 23 out of the 26 Member States, the government deficit in 2020 was above and not close to the 3% of GDP Treaty reference value – i.e. in Belgium, Czechia, Germany, Estonia, Ireland, Greece, Spain, France, Croatia, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Hungary, Malta, the Netherlands, Austria, Poland, Portugal, Slovenia, Slovakia and Finland.
At the same time, in Bulgaria and Sweden the general government deficit was above but close to 3% of GDP.
According to its 2021 Convergence Programme, Denmark plans a general government deficit of 3.3% of GDP in 2021, which is above but close to 3% of GDP.
The excess over the Treaty reference value for the 26 EU Member States is considered to be exceptional as defined by the Treaty. However, with the exception of Bulgaria, Denmark, Germany, Ireland, Cyprus, Latvia, Luxembourg, the Netherlands, Austria, Poland, Finland and Sweden, the excess over the Treaty reference value is not expected to be temporary.
Overall, taking into account all relevant factors as appropriate 22 , the analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/1997 is fulfilled by Bulgaria, Denmark and Sweden. The deficit criterion is not fulfilled by 23 Member States: Belgium, Czechia, Germany, Estonia, Ireland, Greece, Spain, France, Croatia, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Hungary, Malta, the Netherlands, Austria, Poland, Portugal, Slovenia, Slovakia and Finland. 23
General government gross debt exceeded the 60% of GDP reference value at end-2020 in Belgium, Germany, Greece, Spain, France, Croatia, Italy, Cyprus, Hungary, Austria, Portugal, Slovenia, Slovakia and Finland. Data show that in 2020 the debt reduction benchmark was not complied with in Belgium, Greece, Croatia, Italy, Cyprus, Hungary, Austria, Portugal and Slovenia. The debt reduction benchmark cannot be meaningfully computed in the case of Germany, Slovakia and Finland. However, since for Slovakia the debt-to-GDP ratio is projected to fall below the Treaty threshold reference value in 2021, it is considered to comply with the debt criterion. Moreover, Spain and France, which are subject to the transitional debt rule, did not make sufficient progress towards meeting the debt reduction benchmark in 2020.
Overall, taking into account all relevant factors, the analysis suggests that the debt criterion as defined in the Treaty and in Regulation (EC) No 1467/1997 is fulfilled by Slovakia. The debt criterion is not fulfilled by Belgium, Germany, Greece, Spain, France, Croatia, Italy, Cyprus, Hungary, Austria, Portugal, Slovenia and Finland.
(1) The clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) 1466/97 and Articles 3(5) and 5(2) of Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of severe economic downturn.
(2) Communication from the Commission to the Council on the activation of the general escape clause of the Stability and Growth Pact, Brussels, 20.3.2020, COM(2020) 123 final.
(3) Council Recommendations of 20 July 2020 (2020/C 282/01 to 2020/C 282/27), OJ C 282, 26.8.2020, p. 1-182.
(4) Pending final adoption by the Council, after endorsement by the European Council. The text agreed by the Eurogroup on 16 December 2020 is available at: https://data.consilium.europa.eu/doc/document/ST-14356-2020-INIT/en/pdf
(5) Communication from the Commission on Annual Sustainable Growth Strategy 2021, Brussels, 17.9.2020, COM(2020) 575 final.
(6) OJ L57, 18.2.2021, p.17.
(7) Communication from the Commission to the Council on one year since the outbreak of COVID-19: fiscal policy response, Brussels, 3.3.2021, COM(2021) 105 final.
(8) Communication from the Commission on Economic policy coordination in 2021: overcoming COVID-19, supporting the recovery and modernising our economy, Brussels, 2.6.2021, COM(2021)500 final.
(9) Eurostat Euro Indicators 48/2021 of 22 April 2021.
(10) Romania’s general government deficit also exceeded 3% of GDP in 2020 and is under the excessive deficit procedure. Thus, it is not covered in this report. On 26 May 2021, the Commission recommended the Council to adopt a recommendation for Romania under Article 126(7) of the Treaty, with a view to bring the excessive deficit situation to an end.
(11) The source for the figures provided in this report is the Commission’s 2021 spring forecast, unless stated otherwise.
(12) Applicable during the transition period of three years from the correction of the excessive deficit, for excessive deficit procedures that were ongoing in November 2011.
(13) The difference between the general government deficit planned in the Stability Programme of Denmark (-3.3% of GDP) and expected by the Commission’s 2021 spring forecast (-2.1% of GDP) is mainly driven by the fact that the Commission expects a better macroeconomic outlook, led by stronger domestic demand, which contributes to higher tax revenues, and more optimistic assumptions about the pension yield tax (i.e. closer to the observed yield in 2019 and 2020).
(14) The updated Commission estimates point to 4.5 percentage points based on the simulation analysis presented in Pfeiffer, P., Roeger W. and in ’t Veld, J. (2020), ‘The COVID-19 pandemic in the EU: Macroeconomic transmission and economic policy response’, European Economy-Discussion Paper 127, July 2020.
(15) The debt sustainability analysis does not take into account longer-term growth impact of the reforms and investments financed by the Recovery and Resilience Facility, which may mitigate sustainability risks.
(16) Debt Sustainability Monitor 2020 (February 2021), European Economy-Institutional Papers 143.
(17) The 2021 Ageing Report: Economic and budgetary projections for the EU Member States (2019-2070) (May 2021), European Economy-Institutional Papers 148.
(18) More information in the 2021 Spring Economic Forecast: https://ec.europa.eu/info/sites/default/files/economy-finance/ip149_en.pdf
(19) Modified domestic demand is a measure of domestic activity that excludes globalisation effects such as trade in intellectual property and trade in aircraft by leasing companies and is an important indicator of underlying demand.
(20) Commission Implementing Decision (EU) 2021/271 of 17 February 2021 on the prolongation of enhanced surveillance for Greece (OJ L61, 22.02.2021, p. 3).
(21) Communication from the Commission – Enhanced Surveillance update – Greece, Brussels, 2.6.2021, COM(2021) 528 final.
(22) Section 4 explains the conditions needed for the relevant factors to be taken into account in the steps leading to the decision on the existence of an excessive deficit on the basis of the deficit criterion. The relevant factors shall always be taken into account when assessing compliance on the basis of the debt criterion.
(23) Romania is under an excessive deficit procedure and therefore has not been discussed in this report.