European Union finance ministers agreed on Tuesday to start large-scale fiscal consolidation in 2011 at the latest but said it was too early to consider similar deadlines for ending bank support in the EU. The agreement on deficit reduction at EU level followed a similar accord on Monday among the 16 EU countries that use the euro, but EU ministers rejected suggestions that they should also set a start-date for phasing out bank support.
"It's premature now to start to talk about ending these guarantee schemes, capital injection schemes and bad asset schemes," Swedish Finance Minister Anders Borg told a news conference after chairing talks in Brussels. "We must be clear that there is a need to keep these systems going for quite some time."
The European Commission, the EU's executive arm, had asked ministers to consider options including rolling back state guarantees of bank liabilities and other aid measures from mid-2010, or at least charging higher fees for such cover. European Economic and Monetary Affairs Commissioner Joaquin Almunia said some countries were willing to discuss the idea but others were for now more worried above all that the financial system remained too fragile.
"There's a need for further discussion," Almunia told the same news conference as Borg. Tuesday's talks primarily concerned blanket guarantees that governments across Europe offered banks at the height of the financial crisis to stabilise the situation. The Commission and EU governments are trying to convey a message to financial markets that they are planning for when they can take the economy back off life support after the worst downturn since World War Two.
The economy is widely believed to have started growing in the third quarter, after five quarters of contraction, because of ultra-low interest rates, heavy government spending and other extraordinary fiscal and monetary measures. A Reuters poll of 40 economists shows they expect a quarter-on-quarter GDP rise of 0.5 percent after a 0.2 percent second-quarter drop for the eurozone.
The eurozone's combined deficit is forecast to surge from 2.0 percent of GDP in 2008 to 6.4 percent in 2009 and 6.9 percent in 2010 because of emergency government spending and lost tax income, with a similar rise at EU level, according to Commission forecasts.
Euro zone ministers agreed a meeting on Monday that budget consolidation should start in 2011 and in some cases even sooner, and the Commission is due to publish recommendations on Wednesday on the pace. A document obtained by Reuters showed the Commission wants Germany, France and Spain to cut public deficits by 0.5, 1.25 and 1.75 percentage points of gross domestic product each year respectively up to 2013.
The process would start in 2011 for Germany and France, and a year earlier for Spain, it said. "We will accept the conditions of the deficit procedure and bring our total public deficit under the 3 percent level by 2013," German Finance Minister Wolfgang Schaeuble said. French budget minister Eric Woerth said in radio comments that Paris was for now expecting to get its deficit back in line with an EU limit of three percent of GDP in 2014. The Commission wants it to be in line in 2013.
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