Eurogroup discusses excessive deficit roadmap

Nov 9, 2009, 16:42 GMT

Brussels - Eurozone finance ministers kicked off discussions Monday on how to return to fiscal rectitude after generous public spending aimed at mitigating the impact of the recession.

Latest figures from the European Commission show 14 of the 16 countries which share the common European currency posting budget deficits well in excess of 3 per cent of gross domestic product (GDP) this year.

None of the euro area countries are expected to remain within the 3 per cent limit set by Brussels in 2010, with budget deficits soaring to as much as 12.2 per cent in Greece and 14.7 per cent in Ireland.

On Wednesday, the European Union executive will assess whether France, Greece, Ireland, Spain and non-eurozone Britain have taken effective action to correct their deficits.

The commission will also propose deadlines for the correction in nine other countries where the budget deficit is expected to be above 3 per cent in 2009. These include Germany, Italy and the Netherlands.

EU Economic and Monetary Affairs Commissioner Joaquin Almunia is expected to be particularly tough on Greece, in effect proposing to place the country's budget under Brussels' tight control. EU officials have repeatedly expressed dismay at Greece's tendency to produce unreliable economic estimates.

The commission is also expected to impose an austerity regime on Ireland by asking it to cut its structural deficit by 2 per cent each year.

Germany, meanwhile, will likely be asked to bring its deficit back to the 3 per cent limit by 2013.

EU finance ministers have already agreed in principle to start withdrawing their fiscal stimuli and consolidate their public finances in 2011, but only if economic growth reaches sustainable levels by then.

Last week, the commission published new forecasts reinforcing the view that Europe will emerge from recession in 2010 and that economic growth will be consolidated in 2011.

However, Dutch Finance Minister Wouter Bos cautioned officials Monday against setting firm deadlines, noting that the recovery remained 'fragile' and that risks of a 'double dip' recession remained.

'It is common wisdom that there are two big mistakes you can make: either you start stimulating too late, or stop stimulating too early,' Bos said as he arrived for evening talks in Brussels.

Swedish Finance Minister Anders Borg, whose country holds the EU presidency but is not part of the eurozone, weighed in the discussion by saying public finances in Europe were 'on an unsustainable course.'

Government officials are eager to reassure the financial markets that they have their public finances under control, hence the need to spell out fiscal 'exit strategies'.

'It is quite clear that Europe has landed on its feet. We have avoided a depression and we haven't seen a meltdown of the financial system,' Borg said.

However, fiscal exits should be a 'top priority', Borg said.

The Swedish minister said the current crisis had reinforced the argument for his country joining the euro, but acknowledged that it would 'take time to convince the people.' Swedes rejected euro membership in a 2003 referendum.

While in Brussels, ministers were also expected to start discussions on when to stop providing guarantees offered to their banks in the wake of the global credit crunch.

Eurogroup chairman Jean-Claude Juncker of Luxembourg did not take part in Monday's talks as he was in Germany to attend celebrations marking the 20th anniversary of the fall of the Berlin Wall.