EU Floats Deficit Rules Easing as Refugee Crisis Costs Soar

  • European Commission to study economic, budgetary impact
  • EU could use `exceptional circumstances' rule in budget pact

The European Union is considering allowing states to exceed budget-deficit rules if the costs of the refugee crisis stretch government finances beyond currently agreed limits.

Finance ministers meeting in Luxembourg asked the bloc’s executive arm, the European Commission, to study the impact of relocating as many as 160,000 arrivals from war-torn countries in northern Africa and the Middle East within the EU. In doing so, officials floated the possibility that a clause in the coalition’s budgetary-discipline pact invoking exceptional circumstances could be used.

MAP: Migratory Routes to Europe
MAP: Migratory Routes to Europe
Bloomberg

The EU will “take into consideration every relevant factor including eventual particular or exceptional circumstances,” Pierre Moscovici, Commissioner for Economic and Monetary Affairs, said on Saturday. “We are ready to make all the analysis asked by member states as well as on the economic effects of this crisis.”

On Monday, interior ministers are set to sign off on an existing proposal to take in 40,000 asylum seekers and broadly assent to 120,000 more, as governments respond to an influx that has tested the EU’s principle of open borders. Yet with many governments already running deficits amid an anemic economic recovery, officials are concerned that acting to ease refugees’ plight could bring them into conflict with the budget rules.

Germany pushed back against easing of budget rules, with Finance Minister Wolfgang Schaeuble pointing out his nation aims to deal with its influx of refugees without taking on new debt if possible.

“Others are getting the idea that this would be a good opportunity to
turn their backs on the deficit rules -- one doesn’t need the refugee question to make such proposals, ” Schaeuble told reporters.

Irish Concerns

The Stability and Growth Pact, which in theory binds states to keep debt and deficits within strict limits, has some flexibility. Countries may be allowed to break the rule that deficits be kept to within 3 percent of gross domestic product in the case of “an unusual event outside the control of the member state concerned,” or in a period of severe economic downturn for the region as a whole.

“I understand a number of European countries would like to see this issue dealt with outside of deficit targets,” Simon Harris, Ireland’s junior finance minister said on Friday in Luxembourg. “It’s very important that there is a humanitarian response and that that humanitarian response is put above and beyond any economic consideration.”

In Germany, which saw more than 200,000 refugees arrive in the first seven months of this year alone, Chancellor Angela Merkel said that the government will add 3 billion euros ($3.4 billion) to the 2016 federal budget and provide another 3 billion euros to states and municipalities. Merkel said on Sept. 7 that “it’s not entirely implausible” that her country will need an extra 10 billion euros in total next year.

EU governments are aiming for a final agreement on refugee quotas by early October, giving ministers the opportunity to wrangle over how to account for extra spending beyond what joint funds can provide. The European Investment Bank said on Friday that it’s ready to provide extra support for short-term lodging for refugees, as well as bolstering longer-term efforts in education, health and housing.

“As a public bank the EIB stands ready to provide support as part of a concerted EU response to the emergency,” said Werner Hoyer, president of the bank. “We are currently witnessing the greatest change in the political landscape in Europe since the fall of the Iron Curtain.”

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