THE EU's executive has launched disciplinary action against Germany, Italy and seven other countries for letting their budget deficits rise above the bloc's permitted ceiling.
Such moves are required under EU law when countries go over the limit, but the European Commission has said it will refrain from telling most of them to rein in their deficits until economic recovery takes root and member states agree on strategies to remove fiscal stimuli boosting their economies.
"We need to continue supporting the economy until the recovery takes hold, in line with the European Economic Recovery Plan," EU monetary affairs commissioner Joaquin Almunia said in a statement.
The EU's excessive deficit procedure can in theory lead to fines for euro zone countries that persistently top the Union's budget deficit ceiling of 3 per cent of gross domestic product, or a freeze in EU aid funds for EU members not using the euro.
The commission took the step in the procedure yesterday against Austria, Belgium, the Czech Republic, Germany, Italy, the Netherlands, Portugal, Slovakia and Slovenia.
The deficits are rising because of the worst economic recession since the second World War which is cutting state revenues while growth-boosting measures are emptying their coffers.
Another 11 of the EU's 27 states are already subject to the discipline action under the bloc's Stability and Growth Pact, which is meant to underpin the euro.
Under the pact, the commission recommends deadlines for cutting the deficits below 3 per cent of GDP and the required annual fiscal correction, proposals that need to be approved by EU finance ministers.
Mr Almunia said the pact was flexible enough to allow for the stimulus measures that were now in place but the commission would seek to enforce fiscal discipline when the crisis was over.
"It is essential to keep applying it rigorously in order to anchor expectations that the excessive deficits will be corrected in an orderly way," he said.
Among the countries already facing disciplinary procedures, Ireland has until 2013 to correct its deficit, France, Poland and Spain until 2012, and Hungary, Lithuania and Romania until 2011. Greece should do it by the end of next year.
Deadlines for the current batch of budget sinners are expected to be set in November. However commission officials and diplomats said privately those deadlines would be extended if the crisis lasted longer than expected.
The commission praised Germany, the euro zone's biggest economy, for taking advantage of good economic times in 2006-08 to cut its budget deficit to 0.1 per cent of GDP last year. This was in contrast to many other countries such as France and Poland, which failed to consolidate public finances.
The Germany fiscal shortfall is still forecast to increase to 5.9 per cent of GDP in 2010 from this year's expected 3.9 per cent - (Reuters)
