This paper provides an overview of the 2017 Stability and Convergence Programmes (SCPs). It takes a glance at budgetary developments in 2016 and sets out the fiscal plans over 2017-2020, both at the country level and the euro area and EU as a whole. It also presents an analysis of the recent and prospective fiscal stance in the euro area. Headline deficits continued to decrease in 2016, more so than expected last year on aggregate terms, reaching 1.6% of GDP in the euro area (1.7% in the EU). This was mostly thanks to GDP growth exceeding Member States' prospects. At the same time, the structural balance remained broadly unchanged in the euro area, while improving somewhat in the EU. The fiscal stance of the euro area was broadly neutral on average between 2014 and 2016, following considerable retrenchment over the period 2011-2013. In 2017 and beyond, SCPs plan further improvements in headline balances, approaching zero in 2020. In structural terms, the fiscal outlook is broadly unchanged in 2017, but consolidation is planned to resume mildly in 2018 and beyond. In 2016, 13 Member States are at or above their MTOs. By the end of the programme horizon, 15 Member States plan to be at or above their MTO and another three expect to be in its vicinity. The euro area fiscal stance is expected to be slightly expansionary in 2017 and 2018 according to the discretionary fiscal effort derived from the Commission 2017 spring forecast (under the no-policy-change assumption for 2018). On the one hand, the economic recovery is steady with continuously closing output gap. On the other hand, the policy-supported economic recovery still remains moderate, with risks to the outlook tilted to the downside. Despite recent improvements in unemployment, significant slack remains in the labour market. Over the next two years, wage growth is expected to remain constrained and the investment gap is expected to persist, while core inflation is forecast to stay subdued. Together with a large expected current account surplus in the euro area, this suggests that there is still scope for higher growth without triggering inflationary pressures. Therefore, the analysis points to a remaining trade-off between sustainability and stabilisation needs for the euro area as a whole for 2018. A convincing strategy for addressing the remaining uncertainties would therefore be to pursue a broadly neutral fiscal stance in 2018 for the euro area as a whole, with proper differentiation across Member States, catering for sustainability needs. The aggregation of the Member States plans presented in the stability programmes actually points to a broadly neutral fiscal stance. In addition, an analysis shows that crosscountry spillover effects are non-negligible. This finding strengthens the case for an appropriately differentiated fiscal stance, i.e., one in which Member States with fiscal space make use of it and Member States who need to consolidate do so at a lesser cost.
