By Jennifer Ryan and Francois de Beaupuy
Nov. 10 (Bloomberg) -- European Union finance ministers committed to start reining in budget deficits by 2011 at the latest even as they said economic stimulus remains necessary to nurture the recovery from the deepest slump in six decades.
“Restoring the public finances and tackling unemployment will be the priorities for the time to come,” Spanish Economy Minister Elena Salgado told a press conference in Brussels late yesterday after leading a meeting of euro-area finance chiefs. “Without doubt, public finances are on an unsustainable course,” said Swedish Finance Minister Anders Borg, whose government holds the EU’s rotating six-month presidency.
European governments have put forward billions of euros in measures aimed at reviving growth and saving jobs. The average budget shortfall in the euro region will balloon to a record 6.9 percent of gross domestic product next year with all 16 euro nations breaching the EU limit of 3 percent of GDP, the European Commission forecasts. The jobless rate is projected to reach 10.9 percent in 2011, the most since at least 1995.
The commission, the Brussels-based EU executive, tomorrow will issue reports assessing efforts by France, Spain, Ireland, Greece and the U.K., which isn’t in the euro area, to start to bring their deficits back into line with EU rules. Germany, Europe’s largest economy, and eight other countries will be given deadlines to correct their deficit overruns.
‘Adequate Deadlines’
“We need to establish the adequate deadlines and paths for the correction of these excessive deficits,” EU Economic and Monetary Affairs Commissioner Joaquin Almunia said today in Brussels, where the euro-area finance chiefs will be joined by their counterparts from the rest of the 27 EU nations. “It is an important issue that we have to combine with short-term fiscal stimulus that is still needed.”
Overall government debt for the 27 nations in the EU will reach 79 percent of GDP in 2010 and more than 83 percent the following year, the commission forecast last month. Without budget-cutting efforts, the debt-to-GDP ratio “could reach 100 percent as early as 2014 and keep on increasing,” according to a commission document discussed at yesterday’s meeting.
The finance ministers last month agreed to wait until 2011 before cutting deficits to allow government spending to boost growth while the region recovers from the recession. Almunia affirmed that timeframe following yesterday’s meeting.
Fiscal Exit
“If things go the way most central projections suggest, then 2011 would be the year to start consolidation and fiscal exit,” Dutch Finance Minister Wouter Bos said. “We shouldn’t stop stimulating too early.”
The euro-region economy will contract 4 percent this year before expanding 0.7 percent in 2010, according to the forecasts by the commission, the EU executive. European Central Bank President Jean-Claude Trichet said yesterday that while the recovery is taking hold a little faster than expected, risks to growth mean there is “no time for complacency.”
Group of 20 governments meeting in St. Andrews, Scotland, on Nov. 7 pledged to keep interest rates low and maintain record budget deficits until recoveries take hold. Global stocks rallied yesterday and the dollar slid after the G-20 commitment to maintain stimulus efforts. Trichet said central bankers agreed on the need for a “gradual and timely phasing out” of non-conventional policy measures without signaling that such a move was imminent.
Banking Industry
Ministers also will discuss how to phase out support for the banking industry. EU governments have provided 920 billion euros ($1.4 trillion) in guarantees for the financial-services industry, and officials should begin making the national plans “less attractive” by bringing the pricing of aid “closer to market conditions,” according to a draft report by EU regulators to be discussed at today’s meeting.
The U.K. last week gave more support to Royal Bank of Scotland Group Plc, making it the most expensive bank bailout ever. Barclays Plc, the U.K.’s second-biggest bank, said today that third-quarter earnings fell 54 percent as impairment charges increased.
“The tricky thing for ministers is that there is no one- size-fits-all policy for the all the countries,” Carsten Brzeski, senior economist at ING Belgium SA in Brussels, said in an interview today with Bloomberg Television. “We have different problem cases now.”
To contact the reporters on this story: Jennifer Ryan in Brussels at jryan13@bloomberg.net; Jurjen van de Pol in Brussels at jvandepol@bloomberg.net.
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