Luxembourg, 05/06/2007 (Agence Europe) - On Monday evening, finance ministers from the euro area confirmed their commitment to consolidation of public finances during periods of strong growth, with the spring forecast predicting growth of 2.6% of GDP this year and 2.5% next year (see EUROPE 9421). These forecasts were confirmed by the International Monetary Fund (IMF), the director of the European Department of which, Michael Deppler, was present at the meeting. Afterwards Eurogroup President Jean-Claude Juncker welcomed the “still favourable” medium-term growth forecast. Mr Juncker, not seeing “any major risks to price stability in the short or medium term”, told press that the “very positive developments on the labour market demonstrate that structural reforms are beginning to bear fruit”. The satisfaction is real, but Mr Juncker drove home the message about budgetary demands. “Every member state, with one or two exceptions, has used unexpected budgetary revenue to reduce its deficit or debt levels”, but “for the future we must make better use of the good economic times,” he said.
With regard to the 2008 national budget guidelines of nine member states, the ministers are sticking to the line defined in Berlin to reach their medium-term objective by 2010 at the latest (see EUROPE 9411). These guidelines, advocated by the Stability and Growth Pact (SGP) and confirmed at the informal Ecofin in April, are very important and ought to be incorporated into the budgets, said Mr Almunia, acknowledging that “this is not easy” but hoping that “peer pressure and support” would play their full parts. The German and Dutch budgets having been examined in April, the French and Irish budgets will be considered in July.
At this point, then, the new French finance minister, Jean-Louis Borloo, did not set out exactly his government's intentions. While Nicolas Sarkozy, in the presidential electoral campaign, indicated he would like to see the objective of balancing accounts postponed until after the 2010 deadline, the Eurogroup highlighted the obligations to which all the countries of the euro area subscribed. “I did not hear anything in what my French colleague said that would lead me to believe that the commitments made in Berlin would be called into question,” Mr Juncker said, and he stressed, “I am in no doubt whatsoever that France will meet all the requirements of the SGP”. As is the case in other countries, “good economic times have to be used to reduce the public deficit,” said Joaquin Almunia too. On Monday, Italy, whose president of the Council, Romano Prodi, spoke of possibly using additional budgetary revenues for other purposes, was given further information by the commissioner, who authorised some flexibility depending on the nature of the additional revenues available. The cyclical part of the additional revenue, the major part, must be used for the consolidation of public finances, while the structural part, which would continue to come in if the economic situation became less bright, could be used for other purposes, the commissioner said.
“The discussions were very easy” on the Commission proposal to extend the euro area to include Cyprus and Malta from 1 January 2008, Mr Almunia said, before the decision is formalised by the EU as a whole (see EUROPE 9428). Unlike last year, when Lithuania's bid to join was rejected, ministers accepted the applications of the two countries, which will be officially invited to join the Thirteen by the European Council on 21-22 June. From September, Maltese and Cypriot ministers will be invited to join Eurogroup meetings, which will, then, have 15 participants, Mr Juncker said.
In anticipation of the decision, as recommended by the Commission (see EUROPE 9428), to be taken by the Council the following day, the Eurogroup also gave its backing to the abrogation of the excessive deficit procedures against Germany and Greece. Germany's adjustment had been “impressive”, said Mr Almuia, calling for the effort to continue in 2008, the year when the government plans to reform corporation tax. For Greece, the situation was “not as easy”, with structural reform which could have been more ambitious, he noted. Greece's GDP must also by reviewed upwards (Eurostat would validate the adjustment in the autumn), which would lead to an increase in the Greek contribution to the Community budget (probably, of around 0.5% of GDP). This should not cause the deficit to go above the 3% threshold, however, said Mr Almunia, who felt that the reliability of the statistics “has improved” and that Athens now provides figures of similar quality to those of the other member states. (ab)