EU eases pace of austerity to help economy

By Raf Casert

Associated Press

Published: Wednesday, May 29 2013 12:00 a.m. MDT

European Commission President Jose Manuel Barroso gestures while speaking during a media conference at EU headquarters in Brussels on Wednesday, May 29, 2013. The European Union announced Wednesday to grant France, Spain and four other member states more time to bring their budget deficits under control to support the bloc’s shrinking economy.

Virginia Mayo, Associated Press

BERLIN — The European Union moved away from its focus on tough austerity Wednesday when it gave France, Spain and four other member states more time to bring their budget deficits under control to support their economies.

Unveiling a series of country-specific policy recommendations in Brussels, the EU Commission, the 27-nation bloc's executive arm, said the countries must implement structural reforms, such as overhauling labor markets to make their economies more competitive.

Commission President Jose Manuel Barroso said that the pace of reform needed to be stepped up across the EU to solve the bloc's three-year crisis. "There is no room for complacency," he insisted.

Europe is stuck in a recession, with unemployment at record highs in several countries. This has led to a debate over the merits and faults of budget austerity as a way to solve the region's government debt problems.

By continuing to focus on controlling debt through austerity measures such as spending cuts and raising taxes, Europe's economic downturn has worsened and government revenues have been slashed. This in turn makes it harder to meet deficit targets.

There is now a growing consensus that European governments must shift their budget policies more toward fostering growth to end the downward economic spiral.

Besides France and Spain, the Commission is also granting the Netherlands, Poland, Portugal and Slovenia more time to bring their deficits below the EU ceiling of 3 percent of annual economic output. That means governments will be allowed to stretch out spending cuts over a longer time so as not to choke off growth as they try to fight record unemployment and recession.

The Netherlands and Portugal are granted one more year, whereas France, Spain, Poland and Slovenia are granted two additional years each.

Barroso rejected the idea that the Commission bowed to political pressure and was now too soft on the countries that are granted more time.

Singling out France, the eurozone's second-largest economy, Barroso said the "message to France is indeed a very demanding one."

"This extra time should be used wisely to address France's failing competitiveness," he added.

In its recommendations, the Commission urges France to implement credible "ambitious structural reforms to ... boost growth and employment." It also urges France to cut red tape, improve conditions for small and medium sized companies and strengthen competition in the country's service and energy sector.

"French companies' market shares have experienced worrying erosion in the last decade, in fact beyond the last decade, we can say the last 20 years," Barroso stressed.

"Structural reforms are essential to kick-start growth and serve the dual goal of reducing unemployment and restoring the sustainability of public finances," the Commission said.

Spain, the eurozone's fourth-largest economy which is mired in recession with an unemployment rate of 27 percent, now has until 2016 to bring its deficit under control, which is set to drop from 6.5 percent of GDP this year to then 2.8 percent.

To achieve this significant amount, it says Madrid must scrutinize all major spending programs, push ahead with its labor market reform, revise the tax system, reduce costs in the health sector and push through pending bank recapitalizations.

The Commission's recommendations will become legally binding and shape the countries' fiscal policies once approved by the EU's leaders, who will discuss them at their summit next month.

Some countries were also dropped off the Commission's list of nations whose budget is under increased surveillance because of an excessive deficit. They include Italy, Latvia, Hungary, Lithuania and Romania.

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