European Commission warns against premature withdrawal of fiscal support

BRUSSELS - The European Commission on Wednesday updated its fiscal policy guidance to the European Union member states, warning against a premature withdrawal of fiscal support, which it said should be maintained this year and next.

The guidance provides that once health risks diminish, fiscal measures should gradually pivot to more targeted and forward-looking measures that promote a resilient and sustainable recovery and that fiscal policies should take into account the impact of the Recovery and Resilience Facility (RRF).

European Commission Executive Vice-President Valdis Dombrovskis told a press conference on Wednesday that "While the months ahead will still be difficult, there are now grounds for cautious optimism."

"Growth should resume in spring and gather momentum in the second half of the year as vaccination campaigns advance, pressure on health systems subsides and containment measures ease," added Dombrovskis.

Dombrovskis also urged member states to make the most of the RRF, insisting that "timely, temporary and targeted measures" will allow a smooth return to sustainable budgets in the medium-term.

Expenditure financed by grants from the RRF will provide a substantial boost to the economy in the coming years, without increasing national deficits and debt, according to a Commission press release.

The facility will provide 312.5 billion euros in grants and up to 360 billion euros in loans, with these funds oriented towards the economies worst affected by the economic fallout of the pandemic.