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EU gives times to rein in ballooning deficits

Posted on: March 26, 2009


AFP – Wednesday, March 25

BRUSSELS (AFP) – – The European Commission called Tuesday on EU countries with big deficits to rein in their shortfalls but gave them generous deadlines in which to do so due to the economic crisis.

Launching disciplinary deficit action against France, Ireland, Greece and Spain, the commission gave the countries several years to get their finances in control, with the exception of Greece which got a 2010 deadline.

Under EU rules, the bloc’s member countries are supposed to keep their budget shortfalls to less than three percent of gross domestic product although they are allowed some leeway when the economy sours.

The commission bears responsibility for policing members’ public finances, but has shown little inclination to rush governments to cut their ballooning deficits as the worst recession since World War II rages across Europe.

“National budgetary positions in the EU and elsewhere have deteriorated considerably in the last year and are set to deteriorate further on account of the economic crisis,” Economic Affairs Commissioner Joaquin Almunia said.

“To limit the costs of the debt for generations present and future, it is crucial that governments devise an adjustment path whereby they commit to correct public deficits from the moment the economy starts to recover.”

With Greece’s deficit estimated at 3.7 percent of output this year, the commission gave Athens the nearest deadline in the pack for cutting its deficit, telling the country to bring it in line by next year.

France, with a deficit estimated at 5.6 percent this year, and Spain, with a deficit of nearly 6.0 percent, were both given until 2012 to cut deficits.

With a stunning deficit of 11 percent of output this year, Ireland was told to steadily work on bringing the deficit down by 2013.

Britain, which was already subject to disciplinary action, had a deadline of April 2010 for bringing its deficit under control, but the date was pushed back to April 2014 with the deficit currently running at 8.2 percent.

The five countries’ other EU partner governments have to approve the deadlines for them to become binding.

“We are glad to see the commission’s pragmatic attitude,” a French finance ministry official said. “This pragmatic attitude will allow us to implement our economic recovery plans.”

If a eurozone country flaunts the rules over an extended period, it could in theory face hefty fines although no country has yet met that fate. Non-euro countries such as Britain are not subject to fines.

While EU countries have in the past clashed with the commission over how much flexibility there should be in the EU deficit rules, tensions have subsided considerably since they were eased in a 2005 revision.

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