European Union Finance ministers were set on Tuesday to renew commitments to post-recession debt reduction but without tying themselves for now to a starting date.
The ministers from the 27 European Union countries were also due to broach proposals for supervision of banks and the broader financial industry, something where Britain is particularly wary of encroachment at EU level, according to officials.
At talks in Luxembourg, the ministers were under pressure to show they have an “exit strategy” for restoring order to public finances, and to deliver on promises of better bank supervision to prevent further crises.
“The situation is difficult,” Czech Finance Minister Eduard Janota said. “It is necessary to coordinate the approaches of national coordinators with a pan-European approach.”
It was not clear whether the ministers would try to sort out their differences, and notably British reluctance to sign up to anything that would open the City of London financial center to greater outside oversight, or simply take stock of the issues and pass the thorny ones to EU leaders, who meet next week.
With some data suggesting the worst of the economic downturn may soon pass, the ministers were due to sign off on a document that says there is no need for now for more stimulus spending and that governments are ready to start tightening the belt again once the economy starts to grow.
“With the economic and budgetary outlook forecasted by the (European) Commission in early May, further budgetary stimulus would not be warranted and attention should shift towards consolidation, keeping pace with economic recovery,” said a draft of the document obtained by Reuters.
European Commissioner Joaquin Almunia, whose job is to see that governments comply with the debt and deficit limits of the EU Stability and Growth Pact, said on Monday this move may start early next year but there was no sign of such a hard commitment on timing from ministers.
Almunia said the way things looked now suggested Europe’s economy could start growing again in 2010, probably after the first quarter, and that this would be the right time to begin budget consolidation.
“It seems to us that is an appropriate time (for) moving in a way towards the consolidation of accounts,” Almunia told a news conference after a Monday meeting with finance ministers from the 16 euro currency countries.
The overall budget deficit of the euro zone is expected to rise to 5.3 percent of gross domestic product this year and 6.3 percent in 2010, from 1.9 percent in 2008, the European Commission, the EU’s executive body, says.
For the EU as a whole, the deficit will rise to 6.0 percent this year and 7.3 percent in 2010 unless policies change, the Commission has forecast, from 2.3 percent in 2008.
In forecasts issued on May 4, the Commission predicts that the economy of the euro zone and wider EU will shrink by 4 percent this year in the deepest recession since World War Two, after GDP growth that slowed to just short of 1 percent in 2008 as the boom years turned to bust.
(Reporting by Marcin Grajewski, Paul Carrel, Jan Strupczewski and Anna Willard; Writing by Brian Love; Editing by Dale Hudson)
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