Friday, February 22, 2013

Euro zone budget gap to fall despite recession, Spain to miss targets


Most euro zone countries will reduce their budget deficits this year even though the recession in the single currency area is likely to continue but some, like Spain, will badly miss agreed targets, European Commission forecasts showed on Friday.

France and Portugal will also miss their debt targets, the EU's executive said. All three countries have already indicated as much and will now hope for more leeway from Brussels.

The European Union executive said the euro zone economy would shrink 0.3 percent in 2013 after a 0.6 percent recession last year, but the aggregated budget deficit will fall to 2.8 percent of GDP from 3.5 percent. The euro slipped on the back of the forecasts. 

The euro zone is consolidating its public finances to regain market trust after excessive government spending, real-estate bubbles and lack of competitiveness triggered a sovereign debt crisis that sent the euro zone into recession.

Under EU budget rules, sharpened at the peak of the crisis in late 2011, euro zone countries can face fines if they fail to take action to meet deficit reduction targets set by EU finance ministers.

Progress has been uneven among the 17 countries sharing the euro. The main laggard was Spain, which badly missed the 6.3 percent of GDP deficit target for 2012 with a result of 10.2 percent. Even money the government spent on recapitalizing banks, the 2012 deficit is still well above target at 7.0 percent of GDP.

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