EU Commission says six euro zone countries risk breaking budget rules in 2018

By Jan Strupczewski

BRUSSELS (Reuters) – National budgets of six euro zone countries may break the European Union’s budget deficit rules next year, the European Commission said on Wednesday, with Italy, France and Belgium also failing to cut public debt in line with EU requirements.

The Commission analyzed draft 2018 budget plans of all the euro zone’s except Greece, which is under a bailout program, to check if their main assumptions are in line with EU rules that set limits on budget deficits and public debt.

It said that Germany, Lithuania, Latvia, Luxembourg, Finland the Netherlands as well as Estonia, Ireland, Cyprus, Malta, and Slovakia were either fully or broadly compliant with the rules, called the Stability and Growth Pact (SGP).

“For… Belgium, Italy, Austria, Portugal and Slovenia, the Draft Budgetary Plans (DBP) pose a risk of noncompliance with the requirements for 2018 under the SGP,” the Commission said, adding France was also in the same group.

The rules say that EU countries should have budget deficits below 3 percent of GDP and public debt below 60 percent of GDP.

They should also seek to reach budget balance or surplus in structural terms — which exclude business cycle swings and one-off spending and revenue — and cut debt each year to bring it below the 60 percent threshold if it is higher.

The Commission said France, Belgium and Italy were not reducing their debt at the pace required by EU rules, but singled out Italy, which has the second highest debt in the EU after Greece at more than 130 percent of GDP, to voice concern.

“In the case of Italy, the persisting high government debt is a reason of concern,” the Commission said. “The Commission intends to reassess Italy’s compliance with the debt reduction benchmark in spring 2018,” it said.

The Commission said that it would review Italy’s compliance with the debt-cutting requirements in spring 2018. Italy faces elections next year, which have to be called by May.

France, which has been breaking EU budget deficit limits for 10 years, may bring the shortfall below 3 percent this year as required, but could break the rules again next year by not cutting its structural deficit enough in 2018, it said.

The Commission said it recommended a broadly neutral fiscal stance for the euro zone of 19 countries as a whole.

“This should contribute to supporting investment and improving the quality and composition of public finances. In line with the Commission’s priorities, member states are also asked to step up their efforts to implement measures to fight aggressive tax planning,” the Commission said.

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