* EU gives France, Spain, Poland, Slovenia two more years
for deficit cuts
* Netherlands, Portugal, Belgium also get one more year
* European Commission demands structural reforms in exchange
* Italy, Hungary, Romania and Baltic states released from
By Jan Strupczewski
BRUSSELS, May 29 After three years of deep
spending cuts, the European Union confirmed a shift in policy on
Wednesday, telling countries they must focus on structural
economic reforms to boost growth, while not abandoning budget
In a long-flagged move reflecting growing frustration among
euro zone governments and voters over the hardships of
austerity, the European Commission announced that several
countries would have more time to meet deficit targets.
The change of emphasis comes as the euro zone struggles to
escape a second consecutive year of recession and record high
unemployment that has provoked concerns about social unrest.
The EU's executive said budget cuts would still have to be
made, but since financial markets have calmed after three years
of crisis, there was now more "breathing space", time that
should be used to make long-needed reforms.
"The social emergency in many parts of Europe and the
increasing level of inequalities in some regions add to the
pressing need for reforms," European Commission President Jose
Manuel Barroso said as he presented the Commission's
recommendations for 23 of the EU's 27 member states.
"The fact that more than 120 million people are now at risk
of poverty or social exclusion in Europe is a real worry," he
said. "We need to reform, and reform now. The cost of inaction
will be very high," he said.
France, Spain, Slovenia and Poland were all given two more
years to bring their deficits below 3 percent of GDP, while the
Netherlands, Portugal and Belgium got one more year. At the same
time, Hungary and Italy were removed from a list of countries on
"budget watch", along with Romania, Latvia and Lithuania.
Perhaps the most closely watched recommendations were those
made to France, the euro zone's largest economy after Germany,
and to Spain, the fourth largest, with both in recession and
afflicted with high unemployment
French joblessness is above 10 percent and set to grow while
in Spain it is 27 percent, with more than half of young people
without jobs, giving rise to fears of a lost generation.
Showing just how far the 17-nation euro zone is from
returning to health, the Organisation for Economic Co-operation
and Development said on Wednesday that the currency bloc would
shrink 0.6 percent this year.
Because debt-laden governments cannot afford to jump-start
growth through public spending, they must reform the way their
economies are run, largely by tackling inefficiencies in labour
markets, pension systems and public services.
The Commission emphasised the need for labour markets to be
made more flexible and on the opening up of product and services
markets. It also called for Germany to push wages up in line
with productivity so that domestic demand is increased.
Much of its attention was focused on France, which it said
must carry out labour and pension reforms to regain the
country's lost business dynamism while cutting public spending
to address its swollen budget.
It must also simplify its tax system to help companies
compete and make its pensions system sustainable by 2020.
French labour laws make it difficult to fire someone on a
permanent contract, which makes employers more reluctant to
hire. The minimum wage in France, which at 1,430 euros ($1,850)
a month is among the highest in Europe, hinders employment and
makes French products less competitive globally.
Barroso said Paris should use the extra two years granted by
the Commission to reform.
"This extra time should be used wisely to address France's
failing competitiveness, as France's enterprises have suffered a
worrying loss of competitiveness in the last decade, indeed we
can say in last 20 years," he said.
The commissioner for economic affairs, Olli Rehn, hammered
home that message.
"It is now of paramount importance that this breathing space
created by the slower pace of consolidation is used by member
states for implementing those economic reforms that are
necessary to unleash our growth potential and improve our
capacity to create jobs," he said.
The recommendations, once approved by EU leaders at a summit
in late June, will become binding and are expected to influence
how national budgets are drafted for 2014 and onwards.