By Chris Jones - 22nd February 2006
EU governments are more realistic about setting their economic objectives, but some still have work to do to meet budget deficit limits, Europe’s finance chief has warned.
Monetary affairs commissioner Joaquín Almunia said that member states’ “growth assumptions have become more cautious and plausible” than in previous years.
All member states must tell the commission their growth forecasts for the year, as well as the measures they intend to use to meet strict criteria on budget deficit and inflation.
With 23 of the 25 forecasts now seen by the commission – Poland and Germany have delayed their submissions because of recent changes of government – Almunia said that the overall picture was good.
“Comparison of the growth assumptions in the 23 programmes with the commission’s own assumptions – which are usually regarded more realistic – shows that they are coming closer together.”
“Allowing member states to set their own medium-term objectives increases their commitment to meet the targets,” Almunia said.
But not every country is realistic about its prospects for growth. Greece and Portugal – which both have deficits in excess of the EU target of 3 per cent of GDP – have overestimated their potential growth, according to the commissioner.
Cyprus, Luxembourg, the Czech Republic and Hungary are also thought to have slightly over-estimated their prospects.
Denmark, Finland and Estonia, in contrast, do not expect to see as much growth as the commission.
Almunia said that the more accurate reporting was due to the reform of the so-called stability and convergence criteria, which now allow national governments to set their own objectives rather than meeting targets set by the commission.
Under the old system, countries had to aim for a public spending surplus or close to break even.
But now, national governments are allowed to remain in deficit, provided they are well clear of the 3 per cent limit.
“But setting an appropriate medium-term objective is one thing; achieving it is more important,” Almunia said.
He said that seven countries that are already facing commission sanctions for deficits above 3 per cent are not expected to meet their targets – Greece, France, Italy, Portugal, the Czech Republic, Hungary and Slovakia.
Three others – the UK, Malta and Cyprus – also have excessive deficits but are expected to reduce them on or close to target.
Almunia said that the commission was yet to decide what action to recommend against persistent offenders such as France and Portugal, but that further action could be needed to get their public finances back under control.
And he said that further recommendations for Greece had been delayed by queries from the EU statistical office over the quality of the national accounts.
However, he said the commission had endorsed Italy’s measures to reduce its budget deficit, although he warned that the 2005 figure of 4.3 per cent remained high.
The Spaniard also poured more cold water over Lithuania’s chances of joining the euro next year, the target date set by Vilnius.
“Lithuania’s performance is impressive, but at the moment it does not meet the criterion for keeping inflation under control.
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