EU starts disciplinary budget steps against Croatia

BRUSSELS Tue Jan 28, 2014 6:24am EST

BRUSSELS Jan 28 (Reuters) - European Union finance ministers launched disciplinary steps against Croatia, the EU's newest member, on Tuesday for running an excessively large budget deficit and Zagreb until 2016 to bring the shortfall to within EU limits.

Croatia, which joined the EU last July, has had a budget deficit of more than five percent of gross domestic product since 2009. EU rules set the ceiling for a government shortfall at 3 percent.

Croatia has been in recession since 2009, with unemployment high and rising. Standard & Poor's cut the country's credit rating to below investment grade last week.

EU ministers endorsed a European Commission recommendation that Croatia should cut the deficit to 2.7 percent of economic output in 2016, from 4.6 percent expected this year.

The fiscal consolidation is also to bring down the debt to GDP ratio closer to the EU's ceiling of 60 percent of GDP - a level that Croatia will breach this year with debt rising to 64.7 from 59.6 percent in 2013, according to the Commission.

"The adjustment path recommended by the Commission aims to strike a balance between the need to take into account the weak economic conditions and the urgency of the fiscal adjustment to instill credibility in the consolidation effort," the EU's executive said on Dec. 10.

The Commission wants Zagreb to present plans to reduce the deficit by the end of April. If it does not do so it can face fines.

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