* EU executive to forecast gradual euro zone recovery in H2
* France, Spain, Portugal to miss nominal deficit targets
* EU to focus on structural deficit cuts, weak growth
By Jan Strupczewski
BRUSSELS, Feb 22 Several euro zone countries are
likely to miss deficit cutting targets because of a weak
economy, the European Commission is expected to forecast on
Friday, but they may be granted extra leeway rather than face
The European Union executive will publish economic forecasts
for the 27-nation bloc for 2013 and 2014.
They will shed light on how its members, especially the 17
that share the euro currency, are dealing with reducing
borrowing to win back market confidence in the wake of the debt
crisis, while also trying to stimulate economic growth.
However, the EU executive will only decide on whether to
grant governments more time for adjustment, or step up punitive
action, when more detailed figures are available in May.
Trust in the euro has been bolstered by European Central
Bank pledges to do what it takes to defend its common currency
but hopes the bloc might soon emerge from recession have been
dashed by recent poor data.
In a letter to EU finance ministers last week, EU Economic
and Monetary Affairs Commissioner Olli Rehn said growth in the
euro zone is likely to turn positive only gradually in the
second half of 2013, with job creation inevitably lagging.
Greece, Ireland and Portugal are bound by bailout agreements
with international lenders to stick to agreed timetables of
deficit reduction, or they risk that emergency loans would be
frozen, as was in the case of Greece last year.
Other euro zone countries, including France and Spain, have
to meet deficit targets under EU budget rules - the Stability
and Growth Pact - to bring them below the EU ceiling of 3
percent of gross domestic product.
If they miss the targets because of bad policies rather than
factors outside the government's control, they could face fines.
MORE TIME IS THE MORE LIKELY OPTION
France was to cut its budget gap to 3 percent in 2013 from
4.5 percent in 2012, but the goal was based on assumptions that
the euro zone's second biggest economy would grow 0.2 percent in
2012 and 0.4 percent in 2013.
First estimates show that French GDP was flat in 2012, and
French RTL radio reported that the Commission would say on
Friday that growth in 2013 would be flat again, sending the
deficit to 3.6 percent.
Yet Paris is unlikely to face fines, because while the EU
sets the deficit target in nominal terms, the annual deficit
change is set in structural terms to strip out the effects of
the business cycle and one-off spending and revenue.
Otherwise, trying to cut the nominal deficit at a time when
the economy is in a downturn could make things worse.
"If growth deteriorates unexpectedly, a country may receive
extra time to correct its excessive deficit, provided it has
delivered the agreed structural fiscal efforts," Rehn wrote in
the letter to EU finance ministers.
Spain, Portugal and Greece already benefited from this
approach last year getting more time to cut deficits.
The Commission forecast in November, France will have cut
its structural deficit in 2012 and 2013 by 2.5 points in total
to 2 percent of GDP - one of the biggest cuts in the euro zone.
Spain, in recession last year and this year and where more
than a quarter of the workforce is without jobs, is likely to
miss its 6.3 percent deficit target too, although not by much.
Prime Minister Mariano Rajoy said last month that Spain cut
the structural gap by 3.5 points in 2012, more than called for
under a July deal giving Spain more time to reduce its deficit.
EU Competition Commissioner Joaquin Almunia was reported
last week as telling reporters that Spain has made sufficient
progress in cutting its deficit and that "very probably" the
country will get more time to reach deficit targets.
Another country which might get more time for deficit
reduction is Portugal, where the economy contracted 3.2 pct in
2012 against a Commission forecast of 3 percent and the 2013
contraction is likely to be twice that previously forecast.
"It is reasonable to envisage that the European Commission
will propose ... prolonging by one year the time given to
Portugal to correct its excessive budget deficit," Finance
Minister Vitor Gaspar told parliament on Wednesday.