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EU Criticizes Spending Plans of Four Biggest Euro-Area Nations

Friday, 15 Nov 2013 06:50 AM

The European Union confronted the euro area’s four biggest economies over their spending plans for next year as austerity demands restrain the bloc’s recovery from the longest recession in its history.

The EU said that Germany, Europe’s largest economy, has made “no progress” in following recommendations for structural reforms to its economy, that Spain’s budget risked missing deficit targets and that Italy’s 2014 plan was in danger of breaching debt-reduction rules. It said France had “no margin” for slack in its budget.

“We have reached a turning point on the road to economic recovery and today we reach a milestone in the implementation of Europe’s strengthened economic governance,” EU Economic and Monetary Affairs Commissioner Olli Rehn said in a statement. ’’Today’s commission opinions on national budgetary plans support the euro-area member states in their pursuit of stronger growth and fiscal sustainability.’’

The assessments reveal EU officials’ determination to ensure that governments do not become complacent following forecasts that the euro-area economy will grow next year for the first time since 2011. While the bloc came out of a recession with a 0.3 percent expansion in the second quarter, growth slowed to 0.1 percent in the three months through September, with France’s gross domestic product shrinking and Germany’s economy slowing, data showed yesterday.

‘No Progress’

Germany, the fiercest defender of the austerity-led response to the sovereign-debt crisis, came in for criticism, two days after the European Commission opened an in-depth probe into German current-account surpluses.

“Germany has made no progress in addressing the structural part of the fiscal recommendations” issued by the EU earlier this year, the commission said. “As soon as a new federal government takes office, national authorities are encouraged to submit an updated draft budgetary plan.”

The warnings represent the first use of new powers that governments have given the commission to review countries’ budget plans before they go before national parliaments for approval. While governments are under no obligation to heed any of the advice, the opinions are intended to warn governments to remain committed to policies to cut debt and deficits as the euro area tries to shake off the legacy of the debt turmoil.

With unemployment at a record 12.2 percent and inflation at its lowest level in four years, the EU is eager that governments do not waver in their efforts to boost growth. Euro-area finance ministers will meet in Brussels to discuss the commission opinions on Nov. 22.

Spanish Government

The Spanish government, led by Prime Minister Mariano Rajoy, is targeting a deficit of 5.8 percent of GDP next year. The commission forecast it to be 6.5 percent this year, falling from 10.6 percent in 2012, the widest in the EU.

The commission said that, while Spain had taken effective action in reducing its deficit in 2013, the draft budget for next year is “at risk of non-compliance” with EU rules “as the headline deficit target may be missed and the recommended improvement in the structural balance is currently not expected to be delivered.”

The commission said the draft budget for Italy, which has the second-highest debt level in the euro area after Greece, was at risk of not being compliant with EU rules. “In particular, the debt-reduction benchmark in 2014 is not respected.”

Italy’s budget foresees a labor-tax cut and 3.5 billion euros of spending reductions as it tries to reduce its budget deficit from a predicted 3 percent of GDP this year to 2.5 percent in 2014.

‘No Margin’

The commission said that France was compliant with the EU’s debt and deficit rules “albeit with no margin.”

France’s draft budget forecasts an 18 billion-euro ($24 billion) cut in the deficit for next year, with 15 billion euros coming from lower spending and tax increases of 3 billion euros. The advice given to France follows exchanges between President Francois Hollande and the commission over the country’s economic reforms, particularly its changes to the pension system that don’t include lifting the retirement age from the current minimum of 62.

The four euro-area countries that received full bailouts, Greece, Ireland, Portugal and Cyprus, did not have their draft budgets scrutinized under the new rules.

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The European Union confronted the euro area's four biggest economies over their spending plans for next year as austerity demands restrain the bloc's recovery from the longest recession in its history.
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2013-50-15
Friday, 15 Nov 2013 06:50 AM
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