Out-Law News 1 min. read

EU states to be allowed budget flexibility to finance new infrastructure

EU member states will be given some temporary flexibility to allow them to finance certain vital infrastructure projects without including the cost in their public deficit statements, the European Commission has announced.

The rule change will be available in relation to projects co-funded by the EU, which would otherwise have been included in member states' 2013 or 2014 budgets, according to an announcement by Commission President Barroso. Projects would have to meet certain conditions, and would be approved by the Commission on a case by case basis, he said.

Infrastructure law expert Jonathan Hart of Pinsent Masons, the law firm behind Out-Law.com, said that the rule change could be of potential benefit to the UK.

"This is an important new development which should be given proper consideration by all concerned – industry may see this as another opportunity to be asking for more and faster support by government," he said.

"As far as the UK is concerned, the current condition of public debt seems to mean that the new rules can be taken advantage of. In other words, new infrastructure spending should not count towards assessment of the UK's own deficit – albeit on a short term basis. However, the timing of this announcement does not appear to have had any bearing on the Treasury announcements of last week on infrastructure spending," he said.

He added that it "remained to be seen" whether the Government would "reconsider their attempts at headline-grabbing investment decisions" as part of the Spending Round following the announcement.

Barroso said that the change was permitted under the "preventative arm" of the Stability and Growth Pact (SGP), a long-running formal agreement between member states to facilitate and maintain the economic and monetary union. The flexibility will be in relation to "non-recurrent public investment programmes with a proven impact on the sustainability of public finances", he said.

"We will again, in full respect of the Stability and Growth Pact, consider allowing temporary deviations from the structural deficit path towards the medium-term objectives set in the country specific recommendations on a case by case basis," he told the European Parliament.

"Such a deviation must be linked to national expenditure on projects co-funded by the EU under the Structural and Cohesion policy, Trans-European Networks or Connecting Europe Facility, with a positive, direct and verifiable long-term budgetary effect," he said.

Infrastructure law expert Jonathan Hart said that the announcement appeared not to be applicable to certain member states in the greatest economic hardship, as it would not be available to those states to which the SGP's Excessive Deficit Procedure applied. States where the deficit is over 3% of gross domestic product are subject to stricter rules.

However, he said that the announcement was "obviously a timely reminder of the way in which infrastructure investment remains to be seen as a source of economic growth and new jobs".

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