June 25, 2009 / 6:24 PM / 8 years ago

INTERVIEW-Sweden, on eve of EU presidency, sounds debt alarm

* Swedish PM says deeply worried about soaring EU debts

* Warns against any delay to confirming new commission head

* Says EU should not consider sanctions against Iran for now

By Niklas Pollard and Johan Sennero

STOCKHOLM, June 25 (Reuters) - Sweden’s prime minister said on Thursday he was deeply worried by the soaring public debt across Europe, calling for leaders to map out deficit-fighting plans during his upcoming EU presidency.

Sweden takes over the six-month EU presidency on July 1.

In an interview with Reuters, Prime Minister Fredrik Reinfeldt also said the EU should not consider sanctions against Iran at this stage and he urged the swift confirmation of a second term for the president of the European Commission.

Reinfeldt said further deficit increases risked creating new imbalances in the European economy and rising interest rates.

"I‘m deeply worried, because the history in Europe was that we were highly indebted," Reinfeldt said. "And that is not sustainable long-term because it is sending the invoices to future generations."

The European Commission forecasts the overall deficit in the 27-nation bloc will rise to 6 percent this year and 7.3 percent next unless policies are changed. It was 2.3 percent last year.

EU members should begin plotting roadmaps to deal with the debt, Reinfeldt said. "We should probably engage in talking about these exit strategies and formulating them already this autumn and this will be a shift of course when the Swedish presidency comes in place."

Debate is fierce over how to end the unconventional policy steps that have pumped billions of euros into fighting the crisis. Only this week French President Nicolas Sarkozy rejected austerity measures, despite a surging budget gap. [ID:nLM329433]


EU budget rules limit deficits to 3 percent of gross domestic product but debt has surged as governments have sought to cushion the blow of the worst recession in the EU’s history.

"We need now the exit strategies and also to tell our voters that the line of financial stimulus packages is now exhausted," Reinfeldt said."

The Organisation for Economic Co-operation and Development forecast this week that the 16-nation euro area economy will contract 4.8 percent this year, slightly less than the 5.5 fall seen for euro outsider Sweden. [ID:nPAB007741]

But signs of a steadier economy have emerged.

"The great fall-down we saw in the economy is not really there any more, but the problem is that a lot of the things we are addressing, like unemployment, are still rising and will do so for a long time," Reinfeldt said.

He stressed the need for managing the transition represented by a new term of leadership at the European Commission.

Commission President Jose Manuel Barroso won unanimous backing by EU leaders at a summit last week, but needs approval by the European Parliament, where Socialists and Greens have signalled they will fight against a second term for the former Portuguese prime minister. [ID:nLJ591530]

Sweden and the Czech Republic, the current holder of the EU presidency, are due to consult with parliament on Barroso’s candidacy to ascertain if he can secure a majority, with an eye to holding an assembly vote in mid-July.

Reinfeldt said he did not know if Barroso could be approved next month, but he warned against any delay. "I could easily foresee a postponement to very late in the autumn, with a risk of course at a very crucial time for Europe."

Reinfeldt will take the job at a time of tense relations with Iran, which has been rocked by violence over disputed results of a June 12 election that gave President Mahmoud Ahmadinejad a landslide victory.

The Iranian government says the United States and Britain have incited the violence.

"My worry is that talk of sanctions, talk of a tougher line might just be the start of an excuse for the Iranian leadership not to listen in to what is now being said by the Iranian people," Reinfeldt said. (Reporting by Niklas Pollard and Johan Sennero; Editing by Jon Hemming)

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