THE European economy will need propping up well into 2010, but ballooning budget deficits should be deflated as soon as the recovery is consolidated, possibly by 2011, European Union finance ministers said on 1 October.
“It is quite clear that the economic and financial crisis has been halted by bold and decisive actions from policymakers and that it would be wrong to withdraw the expansionary stimulus measures at the current juncture,” Swedish Finance Minister Anders Borg said at a meeting in Gothenburg. However “this is the right time to start to design and communicate credible exit strategies”, he added. Around 20 out of 27 member states –  among them Germany, France and Britain – now face excessive deficit procedures from the European Commission for exceeding the bloc’s budget deficit threshold, which has been set at 3% of gross domestic product. Average public debt levels, meanwhile, are expected to reach 100% of GDP by 2015 unless action is taken, a Commission document states.
Joaquín Almunia, the EU’s economic and monetary affairs commissioner, said that he wants EU countries to start cutting discretionary spending as of 2011, assuming new forecasts due on 3 November predict that the recession will indeed have ended by then. His concern is that high debt levels could undermine the European Union’s credibility and jeopardize future spending plans.
However, Borg was forced to concede at the end of talks on 1 October that no firm agreement had been reached on when coordinated fiscal exit strategies should be implemented. “We will have to work further on dates,” he said.
Portuguese minister Fernando Teixeira dos Santos was among those expressing scepticism about the idea of setting a common date for all 27 member states. “Every country will have to define its own exit strategy in due time. I don’t think that we can have a precise schedule or a common schedule,” dos Santos said at the start of the talks.