26th Nov 2022

Spain and Italy get leeway on budget targets

Spain and Italy were among eurozone countries told to stiffen their budgets for 2014 on Friday if they want to meet the EU's rules on debt and deficits.

The meeting of eurozone finance ministers in Brussels on Friday (22 November) was the first of its kind, seeing ministers pore over the detail of each others' annual spending plans under the bloc's new economic governance rules.

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Just two euro states - Estonia and Germany - were given the budgetary all clear when the bloc's economic affairs commissioner Olli Rehn published the EU executive's budget recommendations for the seventeen countries last week.

Meanwhile, Finland, Luxembourg and Malta were also warned that their tax and spending plans were "in serious risk of non-compliance" with the currency union's stability and growth pact.

However, no country was sent back to the drawing board to prepare a new budget, while a joint statement released by ministers commented that they "broadly concur with the commission's opinions and analysis".

Although Italian prime minister Enrico Letta had warned before the meeting that "ayatollahs" in Brussels were trying to force yet more austerity measures on the fragile Italian economy, the commission gave Rome more time.

Rehn agreed to wait for progress from Italy on a privatisation programme and for the government to complete a comprehensive spending review with a view to finding further savings.

For his part, Rehn said that Italy should make further adjustments worth 0.4 percent while Spain and Finland would need to make further changes equivalent to around 0.25 percent of GDP.

The commission also agreed to take account of new reforms proposed by Spain since it published its draft budget.

"I would expect that the Italian expenditure review will lead to long-term structural changes. Italy's two biggest problems are a lack of economic competitiveness and the high level of public debt," noted Rehn.

"The European Commission has put on its velvet gloves and left the fiscal axe at home," commented Carsten Brzeski, chief economist with Benelux bank ING.

"We scrutinised each others' budgets and discussed quite openly what the risks were," Eurogroup chairman Jeroen Dijsselbloem told reporters at a press conference following the meeting,

However, those wondering whether the continued stagnation of the eurozone economy could prompt a loosening of fiscal policy were left in little doubt.

"Europe is very committed to fiscal adjustment," said Dijsselbloem, who is also the Dutch finance minister, adding that "if we want to strengthen growth we need to go further on the reform agenda."

He pointed out that the average deficit level in 2014 would fall below the 3 percent limit for the first time since 2008.

"Fiscal policies in the Eurozone continue to point in one direction; and the direction is not towards loosening," noted Brzeski.

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