Spain, Portugal and France likely to be spared further austerity despite poor EC forecasts

 

Spain, Portugal and France are likely be spared pressure by Brussels to impose more austerity, despite forecasts today 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 Vice-President Olli Rehn signalled today 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 also said today that they would ask Brussels to push back the target by a year, as they blamed pinned the blame for their respective borrowing overshoots on the weak eurozone economy. The Commission now expects the 17 nation bloc to contract by 0.3 per cent over the course of 2013. Last autumn it 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 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 today called for a harder line to adopted by the Commission on deficits, particularly with regard to France. Joerg 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 told Reuters. Michael Fuchs, a senior member of Germany’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 twelve 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 0.1 per cent growth, following a flat 2012. Italy is seen contracting by 1 per cent this year, after a steep 2.2 per cent fall last year.

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. Unemployment is expected to peak this year at 27 per cent.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

Day In a Page

Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones