EU ends budget discipline steps vs 4 countries

EU

The European Commission decided on Wednesday to end fiscal disciplinary steps against four European Union countries as their budget deficits fell below the EU ceiling last year and are expected to stay there.

The proposal, when approved by European Union finance ministers, will mean that for the first time since 2002 none of the 15 countries now using the euro is in breach of the bloc’s budget rules, the Stability and Growth Pact, on deficit size. The Commission said in a statement it would ask EU finance ministers to formally close excessive deficit procedures against Italy, Portugal, the Czech Republic and Slovakia, which all cut their budget gaps to below 3% of gross domestic product.

Economic and Monetary Affairs Commissioner Joaquin Almunia said in the statement that the improving public finances showed EU budget rules were working well, but called for more efforts. “Italy must build on the 2007 result to achieve a balanced budget as soon as possible and put the national debt firmly on a downward path to free up resources for growth-enhancing measures,” he said. The Commission expects the budget deficit in Italy, the third biggest euro zone economy, to increase to 2.3% of GDP this year and 2.4% in 2009 from 1.9% in 2007. “These budgetary developments suggest that the deficit has been brought below the 3% reference value in a credible and sustainable manner. However, fiscal consolidation in Italy needs to continue,” the Commission said.

Almunia praised Portugal for reducing the budget gap below the EU threshold one year ahead of time, but because the deficit is likely to increase in 2009 to 2.6% from 2.2% expected this year, Lisbon should maintain its efforts. “Portugal is ... encouraged to pursue the course of budgetary adjustment and structural reforms in order to create more growth and jobs,” he said. Almunia said the Czech Republic, even though its deficit is to fall to historically low levels next year, should intensify reform of pensions and health care because its ageing society will put public finances under strain.

Slovakia, which was invited by the Commission to join the euro zone from next year, must be more ambitious in deficit cutting because of very strong growth. “Its upcoming membership of Economic and Monetary Union makes this particularly important,” Almunia said. Once EU finance ministers approve the Commission’s proposal to end the procedures against the four countries, only Poland and Hungary will remain subject to the EU’s disciplinary budget action. However, the Commission said it was likely to propose to end the steps against Poland as well in June. (Reuters)

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