Tuesday June 9, 10:25 AM
EU finance chiefs eye budget tightening
By Leigh Thomas
LUXEMBOURG (AFP) - European finance ministers were looking on Tuesday to ease the flow of billions of euros they are pumping into their withered economies to limit the damage to their public finances.
"I will certainly support a return to gradual fiscal consolidation. It is essential for everyone," Czech Finance Minister Eduard Janota said as he arrived to chair a meeting with his EU counterparts in Luxembourg.
Ahead of the EU meeting, eurozone finance ministers agreed on Monday to refocus on reining in their ballooning budget deficits if the economy begins growing as expected next year.
"Everybody agrees that we need an exit strategy, that we need to orient our public finance consolidation towards a sustainable position over the medium term," EU Economic Affairs Commissioner Joaquin Almunia said.
"The moment we start implementing these exit strategies will be the moment our recovery gains traction. We cannot start the exit strategy before we have overcome the deep recession we are suffering now."
European countries have seen their deficits blow out as the economic crisis saps tax receipts and bumps up public spending as governments try to spend their way out of a deep recession.
"We consider that during the second and third quarters of 2010 our economies as an average ... will start having positive figures for GDP (gross domestic product) growth," Almunia said.
"I think ... this is the moment to start implementing an exit strategy" from high deficits, he added.
Under the European Union's Stability and Growth Pact, member countries are normally required to ensure that any shortfall between their revenues and spending is kept to less than three percent of GDP.
The ministers were due to adopt a report to be presented at a summit of EU leaders next week stressing that "high priority has to be given to ensuring the long-run sustainability of public finance."
"There is a clear need for a reliable and credible exit strategy."
The European Commission, which polices EU countries' deficits, forecasts that 13 out of the 16 euro countries will break the three-percent rule in 2009 and 2010.
Countries that seriously overshoot the three-percent target are subject to disciplinary deficit action from Almunia and their other EU partners requiring them to get their finances back down to the limit by a deadline.
However, Europe's fiscal rulebook also allows countries to exceed the limit if they are suffering tough economic times, as all European countries currently are.
French Finance Minister Christine Lagarde found little support for a proposal to give special treatment for spending linked to dragging the economy out of recession.
"That would open the door to misunderstanding and even abuses," said German Finance Minister Peer Steinbrueck. "I have made the case not to put into question or doubt the credibility of the Stability and Growth Pact."
Lagarde insisted that she was "very attached" to the budget rules but that she wanted to make a distinction between the normal budget deficit and the "crisis deficit."
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