‘Use the boom’, Commission tells EU

Although EU public finances improved dramatically last year, many member states are still failing to use the economic boom to decrease their deficits further, the Commission said this week.

On 13 June 2007, Economic Commissioner Joaquín Almunia urged member states to take advantage of the economic upswing and address the implementation of their budgetary targets.

 “Although the budgetary situation has improved remarkably in the last few years, it is quite clear that most member states need to improve their track record in implementing their budgetary targets,” Almunia said.

EU public finances improved greatly last year – with faster economic growth than both the US and Japan, the Union made major headway in driving down public deficits as more tax revenues than expected flooded in.

The average public deficit in the 27-nation European Union fell last year to 1.7% of gross domestic product from 2.4% in 2005, while in the eurozone, the average deficit dropped to 1.6% percent from 2.5%.

Italy and Portugal in the eurozone and non-members Britain, the Czech Republic, Hungary, Poland and Slovakia are facing legal action for running their deficits over the 3% EU limit.

But although deficits are broadly coming down across Europe, many member states are failing to meet medium-term commitments to improve their public finances, Almunia added.

In the 2005 reform of the EU’s fiscal rulebook, the Stability and Growth Pact, member states were given more leeway to overshoot the limit during weak economic growth.

However, they were also required to meet targets aimed at improving public finances over the medium term when economic growth was strong and tax revenues flowing in.

The Commission, which polices public finances, said that unless member states changed their current course, only ten of the EU-27 would reach their targets in 2008, despite three consecutive years of above-trend economic growth.

“Most EU countries have just corrected or are about to correct their excessive deficit, the challenge is to use the opportunity offered by the current favourable cyclical conditions, to reach targets set under the pact,” Almunia concluded.

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