EU should keep borrowing limits suspended in 2022 - Commission

By Jan Strupczewski

BRUSSELS (Reuters) - The European Union should keep borrowing limits for governments suspended in 2022, as it has this year and last, to help the 27-nation bloc's economies return to pre-pandemic levels, the European Commission said on Wednesday.

"The general message is that we are keeping a supportive fiscal policy," European Commissioner for Economic and Financial Affairs Paolo Gentiloni told a news conference, adding the EU would, in this way, be in line with the major world economies.

"Today, the Commission states clearly that pulling back support too quickly would be a policy mistake. The best way to secure public debt sustainability is to support the recovery," he said.

The commission, which is in charge of enforcing EU rules that cap government budget deficits and debt to safeguard the euro, said current forecasts showed the EU would only reach its 2019 level of economic output in mid-2022.

EU finance ministers suspended the bloc's budget limits rules, called the Stability and Growth Pact, last year when the COVID-19 pandemic started, using the "general escape clause" put in the rules for such emergencies.

"Current preliminary indications would suggest to continue applying the general escape clause in 2022 and to de-activate it as of 2023," the commission said in a statement.

The recommendation is meant to help EU governments draft their fiscal strategies for the next two years by April.

In May, the commission will issue its new economic forecasts for the bloc's growth, inflation and public finances and finance ministers will then take a final decision on whether to keep borrowing limits suspended in 2022.

If any EU country recovers more slowly than the rest and is still in trouble in 2023, the commission will take that into account in its view of its continued borrowing, it said.

"In case a member state has not recovered to the pre-crisis level of economic activity, all the flexibilities within the Stability and Growth Pact will be fully used, in particular when proposing fiscal policy guidance," it said.

Commission Vice President Valdis Dombrovskis also said that while fiscal polices would have to remain supportive next year, EU governments should gradually differentiate them.

He said countries with strong economies and relatively low debt could afford a more supportive policy, taking into account the impact of the EU's recovery fund that has both grants and loans for every EU member. Those with high debt, should be more careful, he said, and use the EU grants to fund investment.

(Reporting by Jan Strupczewski; editing by Philip Blenkinsop and Bernadette Baum)