Eurozone chiefs scold Italy, France over deficits

6th June 2006, Comments 0 comments

BRUSSELS, June 6, 2006 (AFP) - Italy and France faced pressure Tuesday to step up efforts to cut their deficits at a meeting of eurozone finance ministers that was also to focus on growth ahead of an expected ECB rate hike.

BRUSSELS, June 6, 2006 (AFP) - Italy and France faced pressure Tuesday to step up efforts to cut their deficits at a meeting of eurozone finance ministers that was also to focus on growth ahead of an expected ECB rate hike.

The eurozone ministers, meeting late in the day, are to be joined Wednesday by counterparts from the full 25-nation European Union for discussions on plans to abolish low value-added tax schemes in some member states.

Ahead of the meetings in Luxembourg, EU Economic and Monetary Affairs Commissioner Joaquin Almunia urged Rome and Paris to meet their commitments to post public deficits below a limit in the EU's Stability and Growth Pact.

Both countries are struggling to meet the requirements of the European Union's fiscal rulebook, which requires members to keep their deficit's to less than three percent of output and public debt to less than 60 percent.

With the Italian public deficit expected to reach 4.5 percent and debt 107 percent, the incoming government faces a particularly difficult task of meeting the EU limits.

The previous Italian government had committed to meet the pact's deficit limit of less than three percent of output by next year.

Amid speculation the new government of Prime Minister Romano Prodi might ask for that target to be put back to 2008, Almunia said the government must stick to the 2007 target.

"The objectives of the previous government remain achievable. Previous agreements must be honoured and acted upon," he said in an interview with the French daily Le Figaro.

"Without a correction of the public finances, there is no future for the Italian economy," he said.

Ahead of his debut before eurozone colleagues, Italian Economy Minister Tommaso Padoa-Schioppa said he would renew Italy's promises to rein in its deficit when he briefs his counterparts on the state of the country's public accounts.

"The message is that we are absolutely determined to be fully compliant with the stability and growth pact," he told the Financial Times.

In Brussels, officials are growing concerned that rising interest rates could raise the cost of financing Italy's huge debt, sparking a downward spiral in the country's public finances.

Meanwhile, there are also growing concerns that Paris may need to take additional measures to get its deficit below the three-percent limit this year, but could let up ahead of next year's presidential election.

Almunia said: "In 2005 the deficit was below three percent. In 2006 it is expected to be at three percent, which means that additional measures may be required."

"Next year it is important that these efforts are not wasted, even if France is in an election period," he added.

Against a backdrop of rising interest rates and a strong euro, the eurozone finance ministers are also due to discuss the bloc's growth prospects at their meeting, which comes two days ahead of an ECB interest rate decision.

Although most economic indicators are pointing to firm growth in the 12-nations which share the single European currency, some economists have raised concerns about the euro's recent strength, rising interest rates and high oil prices wearing down the bloc's economic recovery.

Despite such concerns, the European Commission raised its eurozone growth forecasts last week for the second and third quarters of 2006 to a range of between 0.5 and 0.9 percent.

Confident that growth is on track but concerned about inflation, the European Central Bank is widely expected to raise interest rates on Thursday by at least a quarter percentage point.

However, with eurozone inflation stronger-than-expected in May at 2.5 percent, some economists even see a chance that the ECB might raise the cost of borrowing by as much as half a percentage point.

The Frankfurt-based central bank prefers an inflation rate of close to but less than two percent.

Copyright AFP

Subject: French news

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