BRUSSELS (Reuters) - Italy's draft budget plans for 2014 are at risk of breaking European Union rules, while French draft plans barely make it, the European Commission said on Friday.
It is the first time that the European Union's executive arm reviews the main assumptions of draft budgets of euro zone countries before they are submitted to national parliaments so as to assess if they are in line with EU laws.
The Commission has the right to ask for a revised budget plan from a euro zone country if its draft clearly breaks EU rules, which oblige governments to cut deficits until they reach budget balance or surplus and cut debt.
While it did not send back any budget drafts, the Commission also cautioned that several of the plans were optimistic.
"There is a risk that (Italy's) draft budgetary plan for 2014 will not be compliant with the rules," the Commission said. "In particular, the debt reduction benchmark in 2014 is not respected," it said.
EU law requires governments to cut the structural budget deficit, a measure that strips out the effects of the business cycle and one-off spending and revenue, by 0.5 percentage point of gross domestic product (GDP) a year until balance.
But Italy wanted a more lenient approach to its structural gap reduction plan, citing low growth, a headline deficit below 3 percent of GDP and the fact that it was investing.
But the Commission rejected that request, saying that for the more lenient treatment to apply, Italy's debt pile would also have to be falling rather than rising.
'LIMITED PROGRESS' IN FRANCE
The Commission said the euro zone's second biggest economy France had taken the recommended steps in 2013 on the road to reduce its budget gap to below 3 percent by the 2015 deadline.
The French 2014 draft budget was also in line with EU budget rules, but with no margin for error. But to meet the deficit reduction deadline, Paris will need a large package of new measures, the Commission said.
"France should rigorously implement the budget for 2014 and take a significant set of measures for 2015 on top of those specified so far in order to achieve the improvements in the structural balance," the EU's executive arm said.
The targets set for Paris by EU finance ministers are an improvement in the structural budget balance of 1.3 percent of GDP in 2013, 0.8 percent in 2014 and 0.8 percent in 2015.
French structural reforms made "limited progress" and the pension reform was not bold enough to ensure the stability of the pension system in the long term, the Commission added.
The Spanish budget draft for next year was based on too optimistic assumptions of economic growth, the Commission said, and the planned structural deficit cuts were too small.
The target set for Madrid by EU ministers is an improvement of the structural balance of 0.8 percent in 2014, but under the Spanish draft budget the structural budget deficit would improve by only 0.3 percent of GDP next year.
The Netherlands has, like France, a draft 2014 budget constructed in a way that leaves them no margin for error.
The Commission said it would start disciplinary steps against Croatia for running too high a budget gap and step up disciplinary action, known as the excessive deficit procedure, against Poland for not doing enough to cut its deficit.
The Commission will set 2015 as the new deadline for bringing Poland's budget deficit below the 3 percent ceiling.
"While in 2014 the headline target is likely to be met, this is due to a large extent to a one-off transfer of pension funds' assets, which does not guarantee a sustainable correction in the following years," it said.
yahoo.com
It is the first time that the European Union's executive arm reviews the main assumptions of draft budgets of euro zone countries before they are submitted to national parliaments so as to assess if they are in line with EU laws.
The Commission has the right to ask for a revised budget plan from a euro zone country if its draft clearly breaks EU rules, which oblige governments to cut deficits until they reach budget balance or surplus and cut debt.
While it did not send back any budget drafts, the Commission also cautioned that several of the plans were optimistic.
"There is a risk that (Italy's) draft budgetary plan for 2014 will not be compliant with the rules," the Commission said. "In particular, the debt reduction benchmark in 2014 is not respected," it said.
EU law requires governments to cut the structural budget deficit, a measure that strips out the effects of the business cycle and one-off spending and revenue, by 0.5 percentage point of gross domestic product (GDP) a year until balance.
But Italy wanted a more lenient approach to its structural gap reduction plan, citing low growth, a headline deficit below 3 percent of GDP and the fact that it was investing.
But the Commission rejected that request, saying that for the more lenient treatment to apply, Italy's debt pile would also have to be falling rather than rising.
'LIMITED PROGRESS' IN FRANCE
The Commission said the euro zone's second biggest economy France had taken the recommended steps in 2013 on the road to reduce its budget gap to below 3 percent by the 2015 deadline.
The French 2014 draft budget was also in line with EU budget rules, but with no margin for error. But to meet the deficit reduction deadline, Paris will need a large package of new measures, the Commission said.
"France should rigorously implement the budget for 2014 and take a significant set of measures for 2015 on top of those specified so far in order to achieve the improvements in the structural balance," the EU's executive arm said.
The targets set for Paris by EU finance ministers are an improvement in the structural budget balance of 1.3 percent of GDP in 2013, 0.8 percent in 2014 and 0.8 percent in 2015.
French structural reforms made "limited progress" and the pension reform was not bold enough to ensure the stability of the pension system in the long term, the Commission added.
The Spanish budget draft for next year was based on too optimistic assumptions of economic growth, the Commission said, and the planned structural deficit cuts were too small.
The target set for Madrid by EU ministers is an improvement of the structural balance of 0.8 percent in 2014, but under the Spanish draft budget the structural budget deficit would improve by only 0.3 percent of GDP next year.
The Netherlands has, like France, a draft 2014 budget constructed in a way that leaves them no margin for error.
The Commission said it would start disciplinary steps against Croatia for running too high a budget gap and step up disciplinary action, known as the excessive deficit procedure, against Poland for not doing enough to cut its deficit.
The Commission will set 2015 as the new deadline for bringing Poland's budget deficit below the 3 percent ceiling.
"While in 2014 the headline target is likely to be met, this is due to a large extent to a one-off transfer of pension funds' assets, which does not guarantee a sustainable correction in the following years," it said.
yahoo.com
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