Commission to extend deadlines for deficits
Rehn pessimistic about France’s economy.
Doom and gloom in the eurozone
Causes for concern
The European Commission has signalled its intention to relax deficit-reduction targets for three of the eurozone’s largest economies as it sounded an alert over the prospects for the French economy.
Olli Rehn, the European commissioner for economic and monetary affairs and the euro, said that France, Spain and the Netherlands were expected to miss their targets of bringing their budget deficits below 3% of gross domestic product (GDP) this year. He made the announcement as he presented the Commission’s spring economic forecasts on Friday (3 May).
Rehn was significantly more pessimistic about the overall eurozone economy than he had been when he issued the previous forecasts, in February. The eurozone’s GDP is now predicted to shrink by 0.4%. The previous forecast was a 0.3% contraction.
In another sign that the Commission is easing its austerity-led policy, Rehn said that he was prepared to give France, Spain and the Netherlands additional time to meet their deficit-reduction targets; a two-year extension for France and for Spain, and one year for the Netherlands. France’s government had asked only for one extra year.
“It may be reasonable to extend the deadline by two years and to correct the excessive deficit by 2015 at the latest,” said Rehn, adding that France needed to implement structural economic reforms swiftly in order to restore growth and competitiveness, and that the government needed to specify “further actions to meet the objectives in fiscal policy”.
Tougher rules
Eurozone countries are under an obligation to reduce their deficits to below 3% of GDP by this year under the EU’s tougher economic governance rules. If they fail – and if the Commission does not offer an extension – they face being fined up to 0.2% of GDP, subject to approval by the Council of Ministers.
Rehn said that the Commission was more pessimistic about France’s economy than was the French government. He said that the French economy would shrink by 0.1% this year. A previous forecast was for 0.1% growth. “France is a core country for the eurozone, for the eurozone in its entirety,” Rehn said. “France [needs to] put a renewed and strong emphasis on structural reforms in the labour market…to unblock its growth potential and create jobs.”
Rehn also had warnings for Spain. He said that its deficit-reduction target could be extended by two years “in view of the worse economic outlook”. The Commission is also considering putting back Slovenia’s deadline – but only once a “broad-based reform strategy, addressing the country’s imbalances” is implemented.
Rehn said that Belgium’s economy had “come to a standstill”, but refused to say whether Belgium would be the first country to be fined for missing its deficit target. “To my mind the essential thing is to bring the public finances back on track,” Rehn said.
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Recommendations from the Commission over the time given to countries to get to 3%-of-GDP deficits have to be approved by EU member states before the summer.
The Commission is expected to propose the extensions officially when it releases details of its economic recommendations to all member states, based on their budget plans, which is expected on 29 May.
