France, Spain, Italy and the Netherlands - four of the five largest eurozone economies - will be in recession through 2013, the Commission's forecasts showed, with only Germany, the largest economy, managing to eke out growth.
"In view of the protracted recession, we must do whatever it takes to overcome the unemployment crisis in Europe," said Olli Rehn, commissioner for Economic and Monetary Affairs.
"The EU's policy mix is focused on sustainable growth and job creation," he added in comments suggesting a subtle shift from the all-austerity aimed at tackling the sovereign debt crisis.
Rehn pointed out that the record 12% unemployment figure across the continent was reflected in the widely divergent figures in individual member states.
Southern Mediterranean states such as Spain and Greece are recording “unbearably high” levels of joblessness (27%) whilst Austria and Germany hover around the 5% unemployment mark.
This widening gap between North and South runs contrary to the objectives of the single currency, which was launched in the hope that eurozone economies would gradually converge.
Fiscal consolidation slows
"Fiscal consolidation is continuing, but its pace is slowing down. In parallel, structural reforms must be intensified to unlock growth in Europe," Rehn said.
In a clear sign that the Commission will accept some slowing down in the pace of fiscal consolidation, Rehn made clear that France is likely to be given two more years to reach its budget deficit goals as the eurozone relaxes its strict austerity policies.
"In France, the recovery is now expected to be delayed," Rehn told a news conference. "Considering the economic situation, it may be reasonable to extend the deadline by two years and to correct the excessive deficit at the latest by 2015 in France."
Similar leeway is set to be given to Spain, Rehn said, and there may be a year extra for the Netherlands and Slovenia to meet their budget deficit goals.
However, the Finnish commissioner also made clear that these time extensions were dependent on clear reform packages being put in place.
Shrinking projections, but return to growth by 2014
In France, the eurozone's second largest economy, EU forecasts point to a recession in 2013, with GDP expected to shrink by 0.1% and unemployment rising from 10.6% this year to 10.9% in 2014.
Rehn added that the "deterioration in competitiveness" in France means that it will be necessary to reform the labour market and pensions in order to "unlock the growth that France so badly needs.”
The Commission said the eurozone economy would shrink 0.4% this year and grow 1.2% next year, revising down its projections from February of a 0.3% recession and 1.4% growth respectively.
The forecast is roughly in line with the mid-point of the -0.9 to -0.1% range forecast for 2013 delivered by the European Central Bank in March, and the 0.0 to 2.0% growth range seen for 2014.
The expectations underline a shift of focus in the 17 countries that share the euro from sharp fiscal consolidation in the first years of the sovereign debt crisis to economic growth as earlier radical deficit cuts and ECB action restored some market trust in eurozone finances.
Economic growth will be slower than thought in all the biggest eurozone countries, with France dipping into a recession of 0.1%, rather than growing 0.1% as forecast in February, the Commission said.
The only positive change against the February forecasts was Greece, where the economy is now seen contracting 4.2 % this year, rather than the previous 4.4%.
To reduce the negative impact of fiscal consolidation on growth, the overall eurozone budget deficit reduction will be marginally slower this year and next compared with forecast from three months ago. Country differences are bigger.
Italy experienced deeper than expected recession
The aggregate eurozone deficit is to fall to 2.9% of gross domestic product this year and to 2.8% next year from 3.7% last year - only 0.1 percentage point for each year less than previously forecast.
But the slower consolidation will be most pronounced in Italy, which is now seen reducing its budget shortfall only to 2.9% of GDP this year from 3% in 2012, rather than to the 2.1% forecast in February.
The main reason for that is a deeper than expected recession this year and a more modest economic rebound in 2014, when Rome is to bring the budget gap down to 2.5%, against the earlier forecast 2.1%.
France, also in recession, is to have a budget shortfall of 3.9% this year and 4.2% in 2014 unless policies change, against earlier forecasts of 3.7% and 3.9% respectively.
Portugal, on a eurozone financial lifeline, will cut its budget deficit this year only to 5.5% of GDP from 6.4% last year because the recession there will be deeper than expected. The 2013 target in February was 4.9%.
