Commission urges gradual spending cuts to dodge austerity repeat

BRUSSELS — The European Commission is urging EU countries to tread carefully when reducing debt, ideally by cutting spending in a gradual way, to dodge austerity effects.

The tactic could be Europe’s best option to combat the double whammy of sluggish economic growth and a potential trade war with the U.S., while also addressing the continent’s outsized fiscal challenge.

Introducing the EU’s autumn forecast for the last time on Friday, outgoing Economy Commissioner Paolo Gentiloni called on countries not to balance their books by sacrificing investment, as they did during the eurozone crisis.

“Member states will have to walk a narrow path of bringing down debt levels while supporting growth,” Gentiloni said. “Strengthening our competitiveness through investments and structural reforms is crucial to lift potential growth and navigate rising geopolitical risks.”

The EU’s revamped fiscal rules offer each country the chance to spread spending cuts over a longer period, provided they carry out investments and structural reforms agreed with Brussels.

While the Commission favors spreading out cuts over seven years, only five EU countries are taking that option.

Gentiloni also urged member states to make full use of their share of the EU’s post-Covid recovery fund to pay for public investments, before it expires in 2026.

Overall, today’s Autumn forecast sees this year’s eurozone growth unchanged at 0.8 percent, while trimming growth in the broader EU area to 0.9 percent from 1 percent.

Growth in the EU is expected to accelerate in the coming years, to 1.5 percent in 2025 and 1.8 percent in 2026.

The forecasts also see a steady decline in inflation over the next two years, while unemployment in the EU is expected to stay at its current record-low level of 5.9 percent through 2026.

The European Commission warned that geopolitical rivalries might still hit the EU’s economy over the coming years.

Alluding to the recent election of Donald Trump in U.S., the Commission wrote that “further increases in protectionist measures by trading partners could upend global trade, weighing on the EU’s highly open economy.”