EU moves against Spain over swelling deficits

BRUSSELS – The European Commission on Wednesday took the first move to tackle swelling budget deficits in six EU states, including France, Ireland and Spain, as the economic crisis takes it toll on public coffers.

But the EU executive arm said it would use the "full flexibility" available to consider the six cases of deficit overrun due to the "exceptional circumstances" engendered by the US-born crisis that has hit bank lending and consumer spending, putting jobs and businesses at risk.

France, Greece, Ireland, Latvia, Malta and Spain were named as countries that have failed to keep their public deficits to under three percent of gross domestic product in 2008 as required by the EU’s Stability and Growth Pact.

Therefore the Commission "adopted excessive deficit reports" on each of the six, the first move toward seeking more fiscal rigour with the threat of penalties for laggards.

The key question is how much time the commission will decide to give the six countries concerned to get back into budgetary line when it formally opens excessive deficit procedures in February.

EU Economic Affairs Commissioner Joaquin Almunia said Wednesday that France and Spain should work to restore budget discipline in 2010, without going into details.

The issue is further complicated given that many more of the EU’s 27 countries are set to see their deficits balloon above the bloc’s three percent limit this year as they seek to shore up their economies as the worst economic crash in decades lowers tax revenues and increases government bailouts and nationalisations.

"As a result of the sharp global financial and economic crisis, EU public finances are under stress," said Almunia.

"In all cases the commission will use the full flexibility embedded in the revised Stability and Growth Pact when considering the next steps," he added.

The taking of the first step in the deficit procedure had been expected due to the growing recession in Europe.

[AFP / Expatica]