Tags: EU | EU | Budget | Deficits

EU Warns Five Major Euro Zone Nations About Budgets

Wednesday, 17 Mar 2010 10:20 AM

The European Union on Wednesday warned Germany, France, Spain, Italy and the Netherlands that they are relying too much on a strong economic recovery to meet debt reduction targets.

European Commission reports say that the five largest nations that use the euro have "rather optimistic" growth forecasts in their programs to cut budget deficits to the EU limit of 3 percent of gross domestic product.

It said budget figures could be worse than they expect if growth remains slow.

Germany's "budgetary strategy is not sufficient to bring the debt ratio back on a downward path," the EU executive warned.

Berlin needs to reconcile possible tax cuts — promoted by Chancellor Angela Merkel's Free Democrat coalition partner — with the need to reduce budget spending, it said. It also warns that Berlin hasn't spelled out what cuts it would make after this year.

Europe's largest economy isn't facing rocketing debt and deficit levels but still needs to act because debt is mounting and the rising cost of pensions and social security could make it hard to fund public finances in the longer-term.

France's budget plans don't leave "any safety margin if economic developments turn out worse than projected" by the government's "markedly favorable" growth assumptions, the EU said.

It calls on France to specify spending cuts and show exactly how it will bring down its deficit and its debt — which will keep increasing until 2012 as France takes out a "grand loan" of 35 billion euros ($48 billion) to fund a stimulus program.

Spain may need to draft extra measures to reduce its huge deficit — estimated at 11.4 percent this year — by 2013 because it may be too optimistic about growth after this year, the EU report said.

It also cautioned Madrid to make pension reforms to reduce spending. The Spanish government faced protests when it tried to do that by hiking the retirement age from 65 to 67.

The EU told Italy that its debt and deficit could be higher than targeted because the government's growth outlook is likewise too high, it hasn't described how it plans to make reductions and it could spend more than it assumes.

It also says Italy needs "a swift and durable recovery in productivity growth" to get the country's economy growing again. That implies developing more lucrative industries that could generate higher profits from exports.

The EU told the Dutch government to lay out more details on how it will reduce its deficit and debt by 2013.

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