The European Commission on Wednesday warned the eurozone's four largest countries - Germany, France, Italy and Spain - that their economic growth forecasts for the next three years were too optimistic, putting at risk their ability to cut their budget deficits in accordance with the European Union's fiscal rules.The Commission asked these four countries, and others including Austria, Belgium, Ireland and the Netherlands, to spell out exactly how they intended to meet their medium-term deficit reduction targets of 3 per cent or less of gross domestic product - the EU's ceiling in normal economic times.Britain has been warned that its plans to cut its deficit, which is estimated to be £178bn this financial year, were too timid. The Commission wants headline borrowing - currently more than 12 per cent of national output - to fall within the rules of the EU's stability and growth pact to a level of 3 per cent by 2014-15.
The Commission asked these four countries, and others including Austria, Belgium, Ireland and the Netherlands, to spell out exactly how they intended to meet their medium-term deficit reduction targets of 3 per cent or less of gross domestic product - the EU's ceiling in normal economic times.
Britain has been warned that its plans to cut its deficit, which is estimated to be £178bn this financial year, were too timid. The Commission wants headline borrowing - currently more than 12 per cent of national output - to fall within the rules of the EU's stability and growth pact to a level of 3 per cent by 2014-15.
Economic projections for 2010 (and 2011)Country GDP growth Budget deficit Public debt France1.4% (2.5%)8.2% (6.0%)83.2% (86.1%)Germany1.4% (2.0%)5.5% (4.5%)76.5% (79.5%)Italy1.1% (2.0%)5.0% (3.9%)116.9% (116.5%)Ireland-1.3% (3.3%)11.6% (10.0%)77.9% (82.9%)Spain-0.3% (1.8%)9.8% (7.5%)65.9% (71.9%)UK2.2% (3.3%)12.1% (9.2%)82.1% (88.0%)
3 per cent or less of gross domestic product - the EU's ceiling in normal economic times.
It's not the ceiling in normal economic times, but the absolute ceiling. If everyone runs deficits of a couple percentage points in good times, 1) how is gross debt supposed to stay below 60% indefinitely, let alone decrease it it is above? 2) what deficit should we expect in bad times, when the private sector shrinks by several percent of GDP and the public sector has to make it up?
However, everyone has taken it as the allowed deficit level in good times, with predictable consequences playing out as we speak. The brainless should not be in banking -- Willem Buiter
The debt levels for all Eurozone countries would be much lower at the start of the crisis, with most countries well below the 60% cap.
The deficit levels, with the budget balance coming down from a higher level, would have stayed below 3% deficit, or would have exceeded it by much less.
In addition, a less loose fiscal policy in 'good times' would have cooled down the economies and likely prevented certain epic asset bubbles from growing so much. The brainless should not be in banking -- Willem Buiter
Migeru:
In addition, a less loose fiscal policy in 'good times' would have cooled down the economies and likely prevented certain epic asset bubbles from growing so much.
But the economy as a whole wasn't really overheating before the crash. Wait this is important. Someone is wrong on the Internet.
Not really that important. We're only talking in these terms because of the Growth and Stability (suicide) Pact. The brainless should not be in banking -- Willem Buiter
Country GDP growth Budget deficit Public debt Germany 1.4% (2.0%) 5.5% (4.5%) 76.5% (79.5%)
