Brussels, 14/05/2008 (Agence Europe) - On Tuesday 13 May, Eurogroup finance ministers examined budgetary developments in the eurozone in 2008 and policy intentions for 2009, while toning down pressure for balancing the budget by 2010. At the end of the meeting, Jean-Claude Junker sounded a note of caution saying: “We are pleased to see that, in 2007, budgetary improvement continued at an acceptable rate, but we see risks not of coming off the track but of failure to continue this virtuous policy in 2008”. According to the Commission's recent forecasts, the average eurozone budgetary deficit dropped to 0.6% in 2007 but will rise again to 1% in 2008 and to 1.1% in 2009.
In a joint statement adopted on Tuesday, EU15 ministers stress that “the majority of member states has achieved its medium-term objective (MTO) and for most others achieving it by 2010 should be within reach”. Such wording seems to attenuate the obligation subscribed to in Berlin in April 2007 with a view to achieving MTO in 2010 at the latest. Several eurozone countries have not fully respected the structural consolidation commitments agreed to at the time, the text points out, simply saying that “in certain countries, more ambition is needed to make substantial progress towards achieving the MTO”. Although the joint declaration is less imperative about the 2010 deadline, the message delivered to the press remains the same. Mr Juncker thus recalls the need to show proof of “vigilance” in execution of the 2008 budgets and “additional prudence when developing the draft 2009 budgets”. Joaquin Almunia, speaking on Wednesday 14 May after the Ecofin Council, said the objective decided in Berlin has not disappeared. It is well and truly mentioned, but “in quite a different economic environment” than at the time, he stressed. The Eurogroup text stressed the “unusually uncertain and challenging” current economic outlook. According to the Commissioner, ministers are both “consistent” with the commitments of April 2007 and “aware of changes that have taken place” since then in the eurozone economy. The Eurogroup text thus prescribes: - rigorous implementation of the budgets for 2008; - additional prudence in designing fiscal policy plans for 2009 so as to ensure progress towards the MTO in line with the benchmark of 0.5% of GDP improvement of the structural balance for member states that have not reached it; - and increased efficiency of public spending.
With their recent performances, France and Italy - which are not expected to reach their MTO until 2012 and 2011 - are mainly concerned by the risk of a further slide in public finance. The French deficit should thus hover around the limit of the Stability and Growth Pact (SGP) this year (2.9%) and reach it in 2009 (3%), according to the Commission (after 2.7% in 2007). Paris is thus exposed to being called to order by the Commission, probably in the form of a policy recommendation. By choosing this revised SGP instrument for the first time, the Commission may invite France to respect its obligations and give it advice along these lines, without having recourse to the early warning mechanism or launching excessive deficit procedure. Whatever happens, it will take a stance on the French case before the next Eurogroup meeting (probably on 28 May), when ministers will review budget projects for 2009 developed by thirteen of them, including the French minister. (A.B.)