National authorities have deployed unprecedented fiscal support to protect workers and businesses from the crisis caused by the pandemic. Measures taken to protect employment and support workers have included expanding health spending, providing direct income assistance, expanding job-retention programmes and strengthening unemployment insurance. To support corporations, governments have approved tax deferrals, loan guarantees and direct equity injections. These measures were taken following the unprecedented activation of the general escape clause for the stability and growth pact (SGP) in March 2020. As a result, in 2021, most Member States’ fiscal deficits are projected to exceed the 3 % annual budget deficit limit prescribed by the SGP (the numbers are -7.1 % for the euro area and -6.6 % for the EU). Going forward, the deficits are expected to decrease significantly to -3.9 % in 2022 and -2.4 % 2023 for the euro area and -3.6 % and -2.3 % respectively for the EU as a whole. However, by the end of the forecast horizon, under a no-policy change assumption, 10 countries are still forecast to have an annual deficit above 3 % of GDP. This decrease in projected deficits reflects the resumption of economic activity, the winding down of pandemic-related emergency measures, and measures that are expected to be financed under NGEU and the RRF.
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