Big eurozone members likely to stray off track on deficit reduction | Business| Economy and finance news from a German perspective | DW | 11.05.2012
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Big eurozone members likely to stray off track on deficit reduction

The European Commission sees Italy, Spain and France falling short of their own consolidation targets if their economies won't pick up a higher pace than predicted. More austerity must then do the trick.

France, Italy, and Spain will likely fail to meet their budget consolidation goals for next year, with two of them expected to miss the EU's deficit target of 3 percent of GDP by a wide margin, data published Friday by the European Commission showed.

In its spring economic forecast, the EU's executive predicted budget shortfalls of 6.3 percent for Spain, 4.2 percent in France and 1.1 percent in Italy.

In addition, the Netherlands was also projected to miss its deficit goal, as the shortfall there was expected to rise from 4.4 percent this year to 4.6 percent in 2013, the report said.

Originally, Spain and France were planning to drive their public deficits under 3 percent in 2013, while Italy's Prime Minister Mario Monti even promised to balance the country's books next year.

EU Economics Commissioner Olli Rehn said that Italy would achieve a balanced budget "in structural terms" and that there was no need for more fiscal consolidation.

Regarding Spain, Rehn said that he had "full confidence" in the government to rein in the deficit, noting that the Commission's prediction didn't include planned savings in Spain's regional governments and in the nation's social system currently being negotiated.

Growth pivotal

The Commission cautioned that its predictions were based on an "unchanged policies assumption," meaning that all EU deficit offenders could still achieve their goals by introducing additional austerity measures or through higher economic growth.

However, under current circumstances the EU Commission predicts economic activity in the 17-nation eurozone to contract 0.3 percent this year and to expand by just 1 percent in 2013.

Germany is forecast to be among the best performers with GDP growth forecast to reach 0.7 percent in 2012 and 1.7 percent a year later. That would give Europe's biggest economy the chance to reduce new borrowing to 0.9 percent in 2012 and to 0.7 percent in 2013, the Commission said.

The economic outlook for Greece would remain bleak, the EU's executive said, with 2012 growth falling 4.7 percent - more than the 4.4 percent forecast earlier - and the two-year recession there likely to just bottom out in 2013.

Although stressing that economic recovery was "in sight" in Europe, driven by rising global demand, Olli Rehn said that the overall situation would remain "fragile" and marked by "huge differences" among countries.

Eurozone unemployment would remain at a "high level" of 11 percent into 2013, he added, which is more than the latest record of 10.9 percent set in March this year.

uhe/gb (dpa, AFP, Reuters)