UPDATE 2-EU to set 2013 deficit cut deadline for Paris, Berlin

Mon Nov 9, 2009 11:02am EST

(Adds Finnish finmin quote, detail)

By Yves Clarisse

BRUSSELS Nov 9 (Reuters) - The European Commission will propose on Wednesday that Germany, France and Spain should have until 2013 to bring their ballooning budget gaps below the EU ceiling of 3 percent of GDP, draft documents showed on Monday.

The European Union's executive arm will also recommend that Italy should have until 2012 to get back below the ceiling while Britain should get until 2014/15, according to the draft documents, obtained by Reuters.

Euro zone finance ministers on Monday and all EU finance ministers on Tuesday will discuss when at the latest to start withdrawing fiscal stimulus from the economy. Commission forecasts show economic recovery should continue in 2010 and strengthen in 2011.

"I think that according to the current information, 2011 is right, because of the huge deficits we will see..., it is really time to start preparing," Finnish finance minister Jyrki Katainen told Reuters Television in an interview.

Ministers have previously tentatively set 2011 as the deadline for all of the European Union's 27 members to start deep cuts in budget deficits, conditional on the Commission's growth forecasts for the next two years.

The ministers believe that setting a timetable for bringing public finances back in order is necessary to keep markets and consumers confident that government fiscal policy is sustainable. Crisis spending has blown budget gaps in some countries to more than four times the EU limit.

This could push EU debt to levels of 100 percent of its gross domestic product in 2015-2016, the Commission said in September.

FRANCE, SPAIN, BRITIAN GET MORE TIME

The Commission proposals give France, Spain and Britain an extra year to curb their deficits. In April, EU finance ministers set the deadline for France and Spain at 2012 and Britian was initially given a 2013/14 deadline in July 2008.

The Commission said France and Spain had taken effective action to cut their budget deficits as asked by EU finance ministers in April but that their budgets were hit by unexpected adverse economic events which justified the new deadline.

Germany should be cutting its deficit by 0.5 percent of gross domestic product (GDP) annually between 2011 and 2013 -- the European Union benchmark -- but should cut faster if economic or budgetary conditions turn out better than expected, the Commission document showed.

The Commission expects Germany to have a budget gap of 5 percent in 2010 and 4.6 percent in 2011.

France, which according to the Commission will have a budget deficit of 8.2 percent of GDP next year and 7.7 percent in 2011, will have to cut it more quickly to make the deadline.

The annual reduction should be 1.25 percent of GDP in structural terms in the years 2010-2013 and Paris too should cut faster if conditions permit.

Spain, with a shortfall of 10.1 percent forecast for next year and 9.3 percent in 2011, will have to make an even deeper effort -- average annual cuts in structural terms of 1.75 percent of GDP between 2010 and 2013.

The euro zone's third biggest economy, Italy, can cut the deficit by the benchmark 0.5 percent of GDP annually between 2010 and 2012, the Commission said, reducing the gap from the 5.3 percent seen in 2010.

Finally Britain, which the Commission expects will have a budget gap of 12.5 percent in 2010/2011, will have to, like Spain, slash the gap by 1.75 percent of GDP annually to meet the 2014/15 fiscal year deadline.

EU finance ministers are likely to discuss the recommendations at their next meeting in December.

(Writing by Jan Strupczewski, editing by Timothy Heritage/Ruth Pitchford/Toby Chopra/Victoria Main)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.