The Commission warned on 21 May that euro zone countries with large public deficits will have trouble balancing their budgets by 2006 or 2007 unless they adopt fresh measures.
In its fourth annual report on "Public finances in EMU", the Commission identified the following key budgetary policy challenges for the 12 euro zone countries:
- "the medium-term targets of Member States are based on growth assumptions which in light of developments in recent months now appear to be optimistic", and thus the countries with deficits must make continuous progress towards budgetary consolidation in structural terms;
- in view of the predictable demographic changes (i.e., the ageing of the population), a failure by the Member States to change their national economic policies will result in unsustainable public finances for at least half of them;
- the budgetary consolidation strategies should focus on expenditure savings rather than tax increases, and should be combined with the essential structural reforms identified in the Broad Economic Policy Guidelines and as part of the Lisbon strategy;
- especially in France, Germany and Italy - the euro zone countries with the largest public deficits - urgent reform is needed to pensions and health systems to ensure the viability of public finances.
The euro zone countries have committed to balancing their budgets by 2006. However, some states have already changed the deadline to 2007. "Even this date will only be met if additional consolidation measures are undertaken," the Commission warned.