EU MEMBER states have agreed to start cutting crisis spending by 2011 and shaving more than 0.5 per cent of GDP each year off their budgets to rein in ballooning public deficits.
At a meeting in Luxembourg yesterday, EU finance ministers said that as long as economic recovery is assured – based on European Commission projections – they can agree to a joint withdrawal of emergency measures.
“Provided that the Commission forecasts continue to indicate that the recovery is strengthening and becomes self-sustaining, fiscal consolidation in all EU member states should start in 2011 at the latest,” a statement released after the meeting said.
A commission forecast due for release on November 3rd should seal the 2011 target date, but French finance minister Christine Lagarde threw a spanner in the works of the accord, saying after a meeting of eurozone countries on Monday that “there is an ‘if’” hanging over the deadline.
The EU is keen to balance budgets across the bloc, which have risen exponentially in the last year. Greece is the latest country to see its deficit reach double digits, although the country’s new finance minister Giorgos Papaconstantinou admitted to his EU counterparts that the tripling of the deficit since last year was down to a deliberate underestimation of spending.
Greece is just one of 20 EU countries that have breached a 3 per cent of GDP deficit limit set by the EU. The European Commission has set deadlines for several countries to cut spending, giving Ireland until 2013 to come back under the 3 per cent ceiling, and France, Spain and Poland until 2012. The UK has a 2014 target.
Ministers in Luxembourg also gave the green light to a new EU risk watchdog to be headed up by the European Central Bank, which is to oversee economic developments and give early warnings of future crises. The move was welcomed by the Irish Government.
There was no agreement at the meeting over who should pay to limit the effects of climate change in developing countries.
Led by Poland, nine member states refused to sign up to an EU plan to pay €5-7 billion to the world’s poorest countries from 2010 if a follow-up to the Kyoto protocol is agreed at UN climate talks in Copenhagen in November. An intensive day of negotiations in Luxembourg resulted in stalemate despite several attempts at a compromise by Swedish finance minister Anders Borg, who was chairing the talks.
Hungary, Romania, Slovakia, Latvia, Bulgaria, Lithuania, the Czech Republic, Slovenia and Poland wanted two clauses inserted in the ministers’ final statement, one ensuring that contributions to the €5-7 billion of fast-start financing would be voluntary, and that countries’ gross national income would play a part in determining their share.
The nine are concerned that they will end up footing a disproportionate amount of the bill for a commitment made by richer member states. The matter will now pass to EU leaders, who will gather for a summit in Brussels at the end of this month.
