Strict limits on public borrowing and spending will be suspended for another year, the European Union said on Monday, in order to help member nations deal with the economic fallout of the war in Ukraine.
The stringent fiscal rules were temporarily relaxed in March 2020 in response to the coronavirus pandemic, allowing for generous state aid to struggling businesses and citizens. They were due to be reinstated at the start of next year.
But the Russian invasion of Ukraine has disrupted supply chains and sent energy and food prices soaring, putting a strain on the European economy which was just catching a breath after two years of the pandemic. The bloc has imposed economic and energy sanctions on Moscow, and it has been grappling with the double challenge of weaning itself off energy from Russia, its main supplier, and shielding consumers from the effects of price spikes.
The one-year delay in restoring the fiscal rules, which was proposed on Monday by the European Commission, the bloc’s executive arm, is expected to be swiftly approved by national governments.
“It is evident that the union is not yet out of a period of severe economic downturn,” Paolo Gentiloni, the European commissioner for the economy, told reporters. He said that the extension would “provide space for national fiscal policy to react quickly in these highly unpredictable times.”
The war is slowing Europe’s economies: According to the commission’s latest forecast, eurozone growth in 2022 is expected to be as low as 2.7 percent, as opposed to 4 percent predicted before the Russian invasion.
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