Slow growth haunts EU

Three issues haunt «Old Europe:» weak economic growth, high oil prices and fiscal problems. These three issues topped the agenda of the Eurogroup, the finance ministers of the 12 eurozone member states, who met yesterday in Brussels. The Eurogroup members placed special emphasis on the impact of persistently high oil prices. Economic and Monetary Affairs Commissioner Joaquin Almunia told participants that EU economic growth could slow down by 0.2 to 0.4 percent, if present trends persist. It has become a persistent pattern for the EU to announce a modest rate of growth each year and to be forced to lower its estimate due to varying circumstances. This is a matter of concern to the EU partners, who see the economy stagnating and trying, in vain, to catch up with the USA’s flourishing economy. The problem of insufficient growth is slowly being compounded by budget deficits, which are increasingly getting out of hand. This time, the spotlight is on Italy and Portugal. Italy is expected to post a budget deficit of between 3 and 4.3 percent of its GDP in 2005 and is asking for a two-year «grace period» to lower it to below the 3 percent limit imposed by the EU. The EU has seemed willing to provide the grace period. (On June 7, Agence France-Presse reported, the European Commission, which polices deficits in the EU, launched a disciplinary procedure against Italy for having let its deficit rise to 3.2 percent of GDP in 2003 and in 2004. The Commission has given Italy until November 12 to adopt recommended deficit-cutting action, which it will assess to see «if these measures are of a structural nature and not temporary.» Heading into yesterday’s Eurogroup meeting, Italian Finance Minister Domenico Siniscalco voiced satisfaction with the two-year period. «I am happy with the agreement,» Siniscalco said, adding: «I do not expect much discussion.» When asked whether all countries that overshoot the EU limits should get similar treatment, Spanish Finance Minister Pedro Solbes, Almunia’s predecessor replied: «We have to analyze case by case and depending on the specific situation of individual countries adopt the necessary measures.») Portugal faces a harder task, both because its deficit is higher and because it is asking for a three-year grace period. In Portugal, as in Greece, a new conservative government proceeded to audit state finances, revealing higher-than-reported deficits. But then prime minister Jose Manuel Durao Barroso, the current Commission president, failed to put order to its finances. As a result, his party lost the elections and the current socialist government, after a new audit, has discovered that the deficit will exceed 6 percent of GDP. Greece is expected to support Portugal, as well as Italy, in today’s meeting of the EU’s finance ministers (Ecofin).

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