Eurozone strugglers to win more time to cut their deficits

European Commission to extend deadlines as it slashes growth forecasts

Spain, Portugal and France are likely be spared pressure by Brussels to impose more austerity, despite forecasts yesterday from the European Commission showing that they will miss their deficit reduction targets.

Under the terms of the eurozone's new Fiscal Compact member states are required to limit their annual borrowing to 3 per cent of GDP. But in its winter forecast the commission said that Spain's deficit this year will come in at 6.7 per cent while Portugal's borrowing is expected to be 4.9 per cent. The deficit of France, the currency bloc's second largest member, is projected by the commission to be 3.7 per cent of GDP.

Despite this the commission's Vice-President Olli Rehn signalled yesterday that the organisation would refrain from using its powers under the Compact to levy fines on excessive borrowers and would instead give them more time to meet their fiscal commitments.

"In the case of Spain, it seems that the structural fiscal effort has been undertaken and that there has been also an unexpected shortfall of growth," he said.

Ministers from France and Portugal said yesterday that they would ask Brussels to push back their target by a year, as they pinned the blame for their respective borrowing overshoots on the weak eurozone economy. The commission now expects the eurozone to contract over the course of 2013. It slashed its forecast for growth for the 17-nation bloc to a 0.3 per cent contraction. Last autumn it had expected 0.1 per cent growth.

The decision on granting deficit reduction extensions will be taken by the commission in May, Mr Rehn said. States will need to show that they missed their targets because of the unavoidable costs of the eurozone's recession rather than a failure to rein in spending. In an encouraging sign for Paris, the commission's document noted that much of France's deficit overshoot is attributable to the recession. France is expected by the commission to grow by 0.1 per cent over 2013, when it previously expected growth of 0.4 per cent.

However, some prominent German voices yesterday called for a harder line to be adopted by the commission on deficits, particularly with regard to France. Jorg Asmussen, a German representative on the European Central Bank board, told Reuters that Francois Hollande's administration in Paris needed to do more to bring its spending into line with its revenues. "It's a matter of credibility that France takes appropriate steps as quickly as possible to correct this missing target", he said. Michael Fuchs, a senior member of German's Christian Democrats, referred to France as the eurozone's "problem child".

The Spanish government of Mariano Rajoy has pushed through a host of labour market reforms in the past 12 months, but Madrid's deficit in 2012 still came in 10.2 per cent thanks to a deep recession which has pushed unemployment up to 25 per cent. The Spanish economy contracted by 1.4 per cent in 2012 and is set to shrink by a similar amount this year, according to the commission.

Portugal, which has received a bailout from its eurozone neighbours, is seen as contracting by 1.9 per cent, following a 3.2 per cent shrinkage in 2012. France is expected to eke out its predicted 0.1 per cent growth following a flat 2012.

The commission's forecasts are bleakest for Greece, whose economy is seen shrinking for a sixth successive year in 2013.

It is expected to contract by 4.4 per cent, before finally managing a 0.6 per cent expansion in 2014. Greek un- employment is predicted to peak this year at 27 per cent.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

A timely reminder of the bloody anniversary we all forgot

A timely reminder of the bloody anniversary we all forgot

Who remembers that this week we enter the 150th anniversary year of the end of the American Civil War, asks Robert Fisk
Homeless Veterans appeal: Former soldiers pay their respects to a friend who also served

Homeless Veterans appeal

Former soldiers pay their respects to a friend who also served
Downfall of Dustin 'Screech' Diamond, the 'Saved By The Bell' star charged with bar stabbing

Scarred by the bell

The downfall of the TV star charged with bar stabbing
Why 2014 was a year of technological let-downs

Why 2014 was a year of technological let-downs

Security breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Cuba's golf revolution: But will the revolutionary nation take 'bourgeois' game to its heart?

Will revolutionary Cuba take 'bourgeois' golf to its heart?

Fidel Castro ridiculed the game – but now investment in leisure resort projects is welcome
The Locked Room Mysteries: As a new collection of the genre’s best is published, its editor Otto Penzler explains the rules of engagement

The Locked Room Mysteries

As a new collection of the genre’s best is published, its editor explains the rules of engagement
Amy Adams on playing painter Margaret Keane in Tim Burton's Big Eyes

How I made myself Keane

Amy Adams hadn’t wanted to take the role of artist Margaret Keane, because she’d had enough of playing victims. But then she had a daughter, and saw the painter in a new light
Ed Richards: Parting view of Ofcom chief. . . we hate jokes on the disabled

Parting view of Ofcom chief... we hate jokes on the disabled

Bad language once got TV viewers irate, inciting calls to broadcasting switchboards. But now there is a worse offender, says retiring head of the media watchdog, Ed Richards
A look back at fashion in 2014: Wear in review

Wear in review

A look back at fashion in 2014
Ian Herbert: My 10 hopes for sport in 2015. Might just one of them happen?

Ian Herbert: My 10 hopes for sport in 2015

Might just one of them happen?
War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?