Brussels, 11/05/2012 (Agence Europe) - Euro Commissioner Olli Rehn set out on Friday 11 May the budget and macroeconomic policies recommended by the European Commission to strike the right balance between cuts in public spending and structural reforms and targeted growth-stimulus investment. He said it would be over-simplistic to say that austerity wasn't working in the current situation. Rehn was unveiling the European Commission's Spring Economic Forecasts, which expect the eurozone economy to shrink slightly in 2012 before picking up in 2013. Rehn said that it was simply not possible to go on accumulating debt and was therefore essential to cut public spending and continue to consolidate the budget. He pointed out that the Stability and Growth Pact stresses structural sustainability of public finance, taking account of the specifics of each member state's economy. He admitted that targeted expenditure would also be needed in order to strike the right balance between spending cuts and growth measures.
On Wednesday 30 May, the European Commission will publish recommendations with regard to the structural reforms being undertaken in each member state under the European semester system. To this end, the commissioner is pleased with the evening out of macroeconomic imbalances in the eurozone, as illustrated by recent comments by the German government suggesting a less stringent line on inflation.
Rehn said the eurozone will not come out of recession this year (GDP is likely to shrink by 0.3%) but will start to pick up in 2013, reaching 1%. At EU27 level, the economy is expected to stagnate this year and pick up next year. There are still huge gaps between countries. Seven member states will see their economies shrink in 2012, namely Greece (by 4.7% of GDP), Portugal (3.3%), Spain (1.8%), Slovenia (1.4%), the Netherlands (0.9%), Cyprus (0.8%) and Hungary (0.3%). The eurozone member states with the strongest economic growth will be Poland (2.7%), Lithuania (2.4%), Slovakia (1.8%) and Estonia (1.6%).
The average budget deficit will continue to shrink in the eurozone and the EU27 in 2012 to 3.2% (from 4.1% in 2011) and 3.6% (from 4.5% in 2011) respectively, but this varies widely from country to country. In the eurozone, the biggest excess deficits will be in Ireland (8.3% in 2012 and 7.5% in 2013 at current policies), Greece (7.3%, 8.4%), Spain (6.4%, 6.3%) and France (4.5%, 4.2%). Italy is expected to reduce its deficit to below the 3% cut-off point this year (to 2% in fact) and come close to equilibrium in 2013 with a deficit of 1%.
Rehn said he was confident in Spain's ability to meet its excess budget deficit reduction targets (4.3% this year and 3% next year) although this will not be possible without further austerity measures. The new budget stability law is expected to reduce the deficits of the Spanish regions, he said (see below). Commenting on Italy, Rehn said that the country would reach budget equilibrium in 2013 in structural terms (in other words net of cyclical effects and one-off measures). He said Italy did not need to introduce new budget consolidation measures. Asked whether France should introduce austerity measures to bring its deficit down below the 3% mark in 2013, given that the Commission predicts an excess deficit of 4.2% in 2013, the commissioner said that the gap between the Commission's and the French government's forecasts was due to a less optimistic scenario under current policies. Rehn said France will be setting out it budget plans for 2013. Commenting on Greece, Rehn hoped the Greek government would be capable of meeting the challenges facing the country, such as forming a government prepared to implement the second bailout programme. (MB/transl.fl)