France and Spain miss deficit goals, EU to focus on growth

BRUSSELS - Reuters

European Commission President Jose Manuel Barroso says they need to solve the problems in public finances, huge deficits and huge public debt with proper measures for growth. AFP photo

France and Spain fell short of their budget deficit goals last year, data showed yesterday, although the overall fiscal picture for the euro zone improved.

France’s 2012 budget deficit was 4.8 percent of economic output, statistics office Eurostat said in the final reading of all 27 countries’ public accounts. It compared with a target of 4.5 percent.

Spain’s budget shortfall was 7.1 percent, excluding bank recapitalization, higher than the government’s 6.98 percent official year-end reading and well above Madrid’s original target of 6.3 percent.

Overall, the 17-nation euro zone looked much better off at the end 2012, however. Its combined fiscal deficit was 3.7 percent of gross domestic product, compared with 4.2 percent in 2011 and 6.5 percent in 2010.

Budget cuts are at the centre of the euro zone’s strategy to overcome a three-year public debt crisis but they are also blamed for a damaging cycle where governments cut back, companies lay off staff, Europeans buy less and young people have no little hope of finding a job.

Crippling levels of unemployment and outbreaks of violence in southern Europe are now forcing something of a rethink, with the focus shifting to economic growth strategies.

Both Spain and France are expected to get more time to reach EU-mandated targets of 3 percent. “We need to combine the indispensable correction in public finances, huge deficits, huge public debt... with proper measures for growth,” the European Commission’s President Jose Manuel Barroso said in a speech in Brussels just before Eurostat released its data.

Second consecutive year of recession in eurozone

EU leaders are desperate for economic growth as the euro zone struggles through its second consecutive year of recession, and some officials say they will back off from the spending cuts blamed for deepening Europe’s economic downturn.

The Commission will decide on May 29 whether to recommend to EU finance ministers to give Paris and Madrid until 2015 to cut its fiscal gap to 3 percent of GDP, today targeted for 2014.

EU Economic and Monetary Affairs Commissioner Olli Rehn told Reuters in Washington on April 18 that financial leaders from the group of 20 economies calling for less austerity were “preaching to the converted.”

Germany and the European Central Bank still want to see the euro zone put its finances in order after a decade of borrowing that saw countries’ debt and deficit levels rise dramatically.