Recession swells 13 euro nations’ budget deficits

BRUSSELS – Finance ministers from the 16 nations that use the euro on Monday discussed huge budget gaps that breach the three per cent of gross domestic product limit supposed to underpin their shared currency.

The recession will saddle 13 of the 16 euro-zone nations with deficits well over three per cent of GDP in 2009 and the outlook for 2010 is even worse, the European Commission forecast earlier.But in the face of that bleak news, EU goavernments took a stay-the-course attitude – for now – vowing to stick with costly economic revival packages that have yet to show their full impact.Despite concerns about the level of borrowing, Joaquin Almunia, the EU’s Financial Affairs Commissioner, refused to rule out new spending, saying EU leaders could discuss this at a mid-June summit in Brussels.The Commission’s annual spring forecasts earlier spoke of a ‘deep and widespread recession’ that will push up unemployment to record levels in 2010.It is now forecasting that both the euro-zone and the 27-nation EU as a whole will contract by four per cent this year – more than double January’s estimates.Stalling growth and surging unemployment have hit government revenues, just as they pay out billions more in social welfare and health care to the rising number of unemployed.Thirteen nations will break through the budget deficit limit this year, the EU executive predicts – including Germany, which prides itself on fiscal prudence; the German deficit will likely surge from 3,9 per cent this year to 5,9 per cent next year.France’s deficit is expected to balloon from 3,4 per cent in 2008 to 6,6 per cent this year and seven per cent next year.Five euro-zone nations had a deficit over the EU limit last year: Ireland, Greece, Spain, France and Malta.In 2009, their gaps will grow and eight others will join them: Belgium, Germany, Italy, the Netherlands, Austria, Portugal, Slovenia and Slovakia.Ireland will see a massive budget gap, climbing from 7,1 per cent in 2008, to 12 per cent in 2009 and 15,6 percent in 2010. It has been ordered to reduce that to under three per cent by 2013.Widening deficits and mounting debt are a new headache for EU nations as they constrain them from spending more to stimulate their economies.They have already agreed stimulus packages worth an extra 135 billion euro this year and another 90 billion euro next year in tax breaks and infrastructure projects – and have set aside billions to cover capital injections and guarantees for banks that may not ever be called in.Economists and officials from other nations – including the United States – have criticised Europe for not doing enough to boost growth in the world’s biggest consumer market.The European Commission made no overt criticism of the level of stimulus spending but said it hasn’t had any major effect so far because governments are still rolling out their plans. It said it was critical how stimulus plans were designed, saying extra government investment and consumption were likely to have the biggest impact – while tax breaks and reductions, particularly to businesses – will do little to grow the economy.Dutch Finance Minister Wouter Bos said the latest economic forecasts were not surprising and counselled against rushing out new stimulus plans:’We need to first see the impact of the first round of measures,’ he said. ‘A second round would cost governments a lot of money.’French Finance Minister Christine Lagarde echoed that. ‘What really counts are the economic renewal plans’ now being implemented by EU governments, she told reporters.The European Commission sees all 27 EU nations breaking the EU’s budget rules this year by running a joint deficit of twice the maximum allowed limit at six per cent of GDP – or 750 billion euros. That is expected to rise to 7,25 per cent or 900 billion euros next year. -Nampa-AP