Juncker to demand ‘an extra effort’ on deficits

By Stewart Fleming

Date: 01/06/06

EU finance ministers will meet in Luxembourg next week amid growing concern at the state of eurozone public finances.

Luxembourg Prime Minister Jean-Claude Juncker, chairman of the Eurogroup, the finance ministers of the eurozone, said this week that he would be "appealing to ministers to make an extra effort".

Juncker told MEPs on Tuesday (30 May) that budget deficits were getting bigger in the eurozone despite the improvement in Europe's general economic outlook.

He added: "Budget deficits [in the eurozone] are going the wrong way; we agreed to consolidate budgets more when growth is stronger and this is not happening. We are making the same mistakes we made at the end of the previous decade."

Juncker's concerns about the deficit outlook were underscored at the European Commission's meeting on Wednesday (31 May) when Economic and Monetary Affairs Commissioner Joaqu’n Almunia told his colleagues that he expected the eurozone deficit to be 2.4% of gross domestic product (GDP) this year, unchanged from 2005. Although this is better than the Commission's autumn forecast of 2.9%, Almunia pointed out that the improvement reflected mainly higher tax revenues associated with faster growth rather than public-spending cuts.

The Eurogroup meets on 6 June, ahead of the meeting of all EU finance ministers, Ecofin, on 7 June. That meeting comes the day before the European Central Bank meets in Madrid, when it is expected to raise interest rates by 0.25% to 2.75%.

The Commission will next take a formal look at individual countries' fiscal prospects on 22 June when it may recommend that the Council of Ministers bring the excessive deficit procedure for Cyprus to an end because it expects a deficit of 2% by 2007, comfortably below the 3% maximum set by the Maastricht Treaty. Portugal, which is forecast to have a deficit of 6.0% this year and 5% in 2007 will also be on the 22 June agenda, amidst concerns that too little debt reduction is under way and the debt to GDP ratio is still rising.

Italy, whose deficit is forecast to rise to 4.7% in 2007, is also a source of concern. But the Commission is waiting to see what steps the new centre-left government headed by former Commission president Romano Prodi will take to correct the excessive deficit. Prodi, who saw Commission President José Manuel Barroso in Brussels this week, has, in a signal of good intent, appointed former European Central Bank executive board member Tommaso Padoa-Schioppa to be his economy minister. A formal discussion of Italy's budget prospects may be delayed until after the summer break.

Preview of the ECOFIN Council, bringing EU Finance Ministers together in Luxembourg on 7 June 2006.

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