European Union finance ministers renewed pledges on Tuesday to cut their countries' swelling budget deficits once the economic crisis is over. "It is a very important priority for us to establish a common approach to rising deficits ... we need to establish a co-ordinated exit strategy," Swedish Finance Minister Anders Borg told a news conference.
"We need an exit to return to sustainable public finances and a strategy to return to long-term growth." Budget deficits are ballooning across the 27-nation EU as governments pump hundreds of billions of euros into the ailing banking sector and to revive economies from recession.
The European Commission expects 21 out of the EU's 27 countries to have their deficit above the bloc's cap of 3.0 percent of gross domestic product this year. Many ministers are worried fiscal cuts would be difficult as post-crisis economic growth is expected to be weak.
On Monday, eurozone finance ministers discussed fears that the currency area's ability to grow economically would fall dramatically after the downturn. Eurogroup chief Jean-Claude Juncker said the 16-nation currency area's potential growth, or the highest expansion sustainable over time, could fall below 1.0 percent this and next year from 2.2 percent recorded before recession struck.
"Our capacity to grow without imbalances is being diminished by the crisis lower potential growth will constrain the room for manoeuvre for fiscal policies in the near future," Juncker said late on Monday. "We have not reached (a point) at which the exit strategy could be applied. The economic indicators suggest the worst is now behind us. As soon as we see some sort of budgetary recovery, budgetary consolidation should resume," he added.
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