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U.K., Spain, Irish deficits are of ‘Serious Concern,’ EU says
15 October 2009 @ 15:16

Oct. 14 (Bloomberg) -- Worsening budget deficits in the U.K., Spain, Ireland, Greece and Latvia pose a “serious concern” after governments across Europe spent billions to fight the economic crisis, the European Commission said.

“The possible continuing effects of the crisis on the budgetary position and on medium-term growth are a serious concern,” the Brussels-based European Union executive said in a report published today. For these five EU nations, “avoiding exponentially increasing debts is a policy challenge already in a medium-term perspective.”

European countries are grappling with surging state debt and widening budget shortfalls after governments pledged stimulus measures ranging from tax cuts to car-scrapping incentives. The U.K. and the other four nations are among a score of EU members projected to breach the bloc’s deficit ceiling of 3 percent of gross domestic product this year and next, the commission estimates.

Ireland’s budget deficit is forecast to be the highest in the EU next year at more than 15 percent of GDP, while the U.K. is projected to have the second-biggest at 13.8 percent, according to the commission. Overall, EU government deficits may average 6 percent of GDP in 2009 and around 7 percent in 2010 as the economy recovers after a projected contraction this year, the commission said in today’s report.

Shoring up public finances “will require both ambitious consolidation programs that reduce debts and deficits in the coming years and profound reforms of social protection,” according to the report.

Consolidation Strategies

The commission called on governments to continue supporting their economies and avoid “choking of the recovery” while starting to draft their consolidation strategies to rein in debt and deficits. “For some member states, the current deficits may return to surplus when the recovery comes,” the commission said. “But where this is not the case, budgetary consolidation will be necessary and should be undertaken as soon as the time is right.”

In the EU, government debt may reach 100 percent of GDP as early as 2014 and keep increasing, the commission projected in today’s report. In May, the commission forecast government debt would rise to near 80 percent of GDP by 2010 after averaging 73 percent this year. EU rules limit overall debt to 60 percent of GDP.

Source: Bloomberg

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