Europe sets deadline to tackle bloated national debts

2nd October 2009, Comments 0 comments

The deadline is meant to encourage EU members to start making “exit strategies” to end economic pump priming and slow their growing deficits.

Gothenburg -- Europe set a deadline on Thursday to end economic pump priming with a pledge to tackle member states' bloated deficits in 2011, the keystone of exit strategies.

"We think that exit strategies, which must be prepared from today, can be applied during 2011," said Luxembourg Prime Minister Jean-Claude Juncker, who heads up the group of 16 countries that use the euro single currency.

Juncker's timetable was conditional on further improvement in economic data, which has already lifted France and Germany out of recession, with the 16 also expecting to record notional growth in the quarter that ended on Wednesday.

"The economic situation, for all it presents positive signs, remains very fragile," Juncker explained. "We have to wait for the European Commission's 2011 economic forecast (at the start of November).

"The time has not yet come ... to withdraw fiscal stimulus in particular. We have to prepare exit strategies today of course, and see then whether they can be implemented in 2011.

"(But) the exit strategies have to be combined with structural packages, with the aim to enhance our growth potential."

Juncker added that once growth returns, his group agreed that "budgetary adjustment will have to go beyond the 0.5 percent of Gross Domestic Product agreed earlier."

A spiralling drain on public finances amounts to a political conundrum for leaders facing hard-pressed voters at home.

Especially with Juncker outlining diminished growth potential, down from 2-2.5 percent before the crisis, to around 1.5 for the euro countries over the next decade.

He said that level was "patently inadequate if we are to face up to the challenges posed by an ageing population and deal with the challenges of unemployment."

The International Monetary Fund had earlier warned of "a high and rising (national) debt trajectory that could become unsustainable without significant medium-term measures."

Millions of jobs have already been lost -- new figures out Thursday lengthened the eurozone's dole queue to 15.165 million people.

And the EU's economic and monetary affairs commissioner Joaquin Almunia said they would only accept growth had taken hold when it is "fuelled by normal drivers ... consumption and investment, but not specific and discretionary measures."

He said work on improving the functioning of financial markets as well as training and return-to-work incentives would be needed -- plus a special focus on sectors such as communications network industries.

"We need to increase the possibility for workers over the age of 55 to continue to be active in the labour market," he added.

Twenty of the 27 EU countries will be operating above the bloc's threshold for deficits, originally pegged at three percent of GDP, according to Anders Borg, finance minister for current EU chair Sweden, who would host the full EU meeting in the afternoon.

Warning that states cannot keep throwing good money after bad forever, Borg said that the threat of "100 percent" debt levels for the biggest countries in a few years' time was of major concern.

Among those with the highest is France, which this week indicated in its new budget that its public debt will soar to 84 percent of national output in 2010, again well above the theoretical 60 percent limit agreed when setting up the euro.

Without stating any deadline, European Central Bank chief Jean-Claude Trichet said deficit reduction was an integral part of the exit strategy -- essential for recovery itself, because it engenders confidence.

He said timing would be governed by the "compass" of price stability, although Portugal's Finance Minister Fernando Teixeira dos Santos had earlier warned that an "asymmetric" economic landscape across Europe could render agreement on who pulls out in what order problematic.

Roddy Thomson/AFP/Expatica

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