Euro ministers discuss budget deficit "exit strategy"

Jun 8, 2009, 20:44 GMT

Luxembourg - European Union governments should start reining in public spending and reduce their budget deficits as soon as the bloc's economy emerges out of recession, probably in the middle of 2010, EU Commissioner for Economic and Monetary Affairs Joaquin Almunia said Monday.

'We consider that during the second and third quarters of 2010, our economies will on average start having positive figures regarding gross domestic product (GDP) growth. This will be the moment to start implementing an exit strategy,' Almunia said after a meeting of eurozone finance ministers in Luxembourg.

EU governments have responded to the bloc's worst recession since World War II by pumping billions of euros in fiscal stimulus into their economies.

But the increase in public spending has resulted in all but six of the EU's 27 member states running excessive budget deficits this year.

And while the European Commission has shown flexibility in applying the Stability and Growth Pact during the crisis, it now wants to make sure that governments return to budgetary virtuousness once the recovery gets underway.

'The (fiscal) stimulus has to be combined with a strategy that can maintain budgetary stability in the medium term - that is absolutely indispensable,' Almunia said.

But Spanish Finance Minister Elena Salgado, who chaired the meeting instead of its traditional host Luxembourg Prime Minister Jean-Claude Juncker, said any talk of an exit strategy should wait until the autumn, when the state of the economy will be clearer.

The discussion came amid pressure from France to relax the pact, which states that countries cannot run budget deficits of more than 3 per cent of GDP.

Addressing reporters, Almunia also rejected criticisms from the International Monetary Fund (IMF) that the eurozone was lacking a proactive strategy 'to deal with a weakened financial system.'

Instead, he highlighted the IMF's backing of commission plans to introduce an EU-wide supervisory system for banks and other financial institutions.

Those plans will be discussed by EU finance ministers meeting in Luxembourg on Tuesday.

Almunia also urged governments to go ahead with banks stress tests, but insisted that there could not be a US-style one-size-fits- all for the EU's different member states.

Juncker, who normally chairs such eurozone ministers, was absent from part of the meeting because he had to attend domestic political discussions in the aftermath of his party's victory in Sunday's general election.

And while he said he would step down as his country's finance minister, he vowed to stay on as head of the euro group.