November 17, 2015 / 10:17 AM / 2 years ago

Four euro zone countries risk breaking EU rules with 2016 budgets

BRUSSELS (Reuters) - Italy, Lithuania, Austria and Spain risk breaking European Union rules with their 2016 budget plans, the European Commission said on Tuesday, as it took time to assess the fiscal impact of the refugee crisis in Europe and additional security expenses in France.

The Commission, the EU executive arm, checks draft budget plans of euro zone countries every year to see if they are in line with the Stability and Growth Pact, which sets rules for EU budgets.

The rules say a government has to keep the headline budget shortfall below 3 percent of GDP and strive to balance its books in structural terms - excluding one-off revenues and spending and the effects of the business cycle.

To be in line with the rules, each year governments must reduce their structural deficit by at least 0.5 percent of GDP until they are close to balance or in surplus.

The Commission pointed the finger this year at Italy, Lithuania, Austria and Spain.

"The draft budgetary plans of these countries might result in a significant deviation from the adjustment paths towards the medium-term objective," it said.

France's 2016 draft budget was broadly compliant, the Commission said, because the headline deficit was as required.

But France is under an EU disciplinary process, called the excessive deficit procedure, for having a budget gap higher than 3 percent of GDP. EU finance ministers set annual fiscal consolidation targets for countries under this procedure.

The Commission said Paris was at risk of missing these targets and asked the French authorities to take the "necessary measures within the national budgetary process" so that the 2016 budget is in line with EU rules.

The EU executive said however that it will take into account the further costs incurred by France to boost its security after the Paris attacks.

"One thing that is clear in the current circumstances is that in this terrible moment the protection of citizens, the security of citizens in France and Europe is the priority," the EU commissioner for economics, Pierre Moscovici, told a news conference in Brussels, noting that EU rules are flexible and allow to respond to "unexpected circumstances".

"We will reevaluate all possible budgetary expenses of these new developments," Moscovici said, adding that "it is too early to say how they will impact France's budgetary trajectory."

SPAIN AND ITALY

Spain, which faces elections in December, was in bigger trouble.

"The draft budget plan... was found to pose a risk of non-compliance with the requirements for 2016. In particular, neither the recommended fiscal effort nor the headline deficit target for 2016 is forecast to be achieved," the Commission said confirming an opinion issued in October.

It said it had asked Madrid to make sure the budget would comply with EU rules and asked for a updated draft as soon as possible.

Italy's draft budget plan is also at risk of non-compliance with EU fiscal rules, the Commission said in a statement, urging Italy to take "the necessary measures within the national budgetary process to ensure that the 2016 budget will be compliant".

Italy has sought in its budget fiscal leeway expected to be approved by the Commission on the grounds of investments and structural reforms made by the country.

The Commission will decide formally in May whether Italy's budget leeway is in compliance.

MIGRANT IMPACT

The Commission also said that the budget costs of the migrant crisis would be treated as an exceptional circumstance and not counted into the deficit calculations, but concessions will be made only after actual expenses are properly assessed.

Italy, Greece, Austria and Germany are all dealing with hundreds of thousands of asylum seekers from the Middle East and Africa who are fleeing conflicts and poverty in their countries.

Germany, Italy, Austria, Finland and Belgium have included estimates of the financial impact of the refugee crisis in their draft budgets for 2016.

"The stability and growth pact includes a provision for unusual events outside the government's control. The Commission is willing to use this provision," the vice president of the EU executive, Valdis Dombrovskis, told a news conference.

"On the basis of further data provided by authorities we will come back to this in spring when we will assess again the budget situation in 2015 and 2016," Dombrovskis added.

Overall, the aggregate euro zone budget deficit is to shrink to 1,7 percent in 2016 from 1.9 percent in 2015. Debt is also to fall slightly to just below 90 percent of GDP. The Commission said this represented a neutral fiscal stance.

Additional reporting by Alissa de Carbonnel; Editing by Francesco Guarascio/Jeremy Gaunt

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