Belt-tightening: Europe’s first ‘peer review’ highlights budget concerns

Eurozone warns Spain, Italy to deliver on commitments.

BRUSSELS:

The euro-zone warned five countries led by Spain and Italy to deliver on promises to hit deficit and debt targets in national spending plans next year.

The Eurogroup of finance ministers and the European Commission put five countries, which also includes Finland, Luxembourg and Malta, in the spotlight after a first-ever peer review of national euro-zone budgets before being passed in national parliaments.

France too was told that it must accelerate a reform drive, including an assurance to open up labour markets next year.

The broad aim of the European Union (EU) Economic Affairs Commissioner Olli Rehn’s report and recommendations is to stimulate much needed growth and create jobs across the struggling European economy.

In a Eurogroup statement afterwards, ministers said they ‘broadly concur’ with the assessments produced by Rehn’s services.

“Both the Italian and Spanish colleagues made the point they are already preparing a number of additional measures” for 2014, Eurogroup chairman and Netherlands Finance Minister, Jeroen Dijsselbloem, told a press conference after the talks ended.

“These are not yet in the budget,” Dijsselbloem said, but will be subjected to further Commission assessment.

A week after the Commission’s verdict on budgeting among those countries not under bailouts, Dijsselbloem said the 17 eurozone states “head-on confronted each other with the risks still in our budgets, which proved to me that the whole approach, the system (of peer review) is working.”

Rehn said delivery on measures promised by countries under the most pressure, such as a raft of privatisations in Italy, or labour reform in Spain, had to be “concrete, convincing and credible.”

In an interview with German daily Handelsblatt earlier, Dijsselbloem said France was under particular pressure having been granted an extra two years, to 2015, to bring its public deficit back within the EU ceiling of 3% of gross domestic product.”It’s obvious France will have to do more,” Dijsselbloem said.

French Finance Minister Pierre Moscovici said that Paris was in fact classed in a pot of countries causing lesser concern, and insisted: “If we have to make adjustments, we will make these adjustments.”Rehn said last week that France has “no margin” for error in 2014.

Italy is under mounting peer pressure to reduce a public debt level currently some 134% of gross domestic product (GDP), compared with the EU ceiling of 60%.

Prime Minister Enrico Letta said on Thursday that Rome would sell stakes in eight companies including energy giant Eni in a raft of privatisations aimed at raising up to €12 billion ($16 billion).

Meanwhile, Dijsselbloem said that an extra Eurogroup meeting may be required to finalise talks on a ‘Banking Union,’ a new and comprehensive regulatory framework including provisions for winding up failed banks, meant to ensure the banking system can survive any fresh financial crisis.

Difficult coalition negotiations in Germany have so far failed to produce a government under Chancellor Angela Merkel, holding up work on major EU policy issues, including the banks.

Dijsselbloem said he was optimistic that an agreement would be reached by December and hoped the coalition negotiations in Berlin would make at least enough progress “for us to negotiate.”

Published in The Express Tribune, November 24^th, 2013.

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