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EU eases pace of austerity to help economy

By Raf Casert

Associated Press

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

The most important of these decisions was on Italy, the eurozone's third-largest economy, where the Commission expects this year's deficit to come in at 2.9 percent and then 1.8 percent in 2014. However, the experts in Brussels gave the new government in Rome a long list of structural reforms that have to be pushed through.

Malta, however, was added to the watch-list and was urged to bring its deficit in line by next year, with a deficit of 3.4 percent of GDP and 2.7 percent in 2014.

The decisions bring the number of countries under the Commission's deficit watch to 16 of the EU's 27 nations, said Olli Rehn, the EU's top economic official.

Since the debt crisis erupted, EU nations have agreed to give the bloc's executive arm more powers in scrutinizing national budgets, complete with the ability to punish or issue binding policy recommendations for countries running excessive deficits.

In practice, however, the Commission wields considerable power in its dealings with smaller member states, but big nations like France are hard to bring into line.

A leading international body warned Wednesday that the recession in Europe risks hurting the world's economic recovery as whole. The Organization for Economic Cooperation and Development said the eurozone's economy is now expected to shrink by 0.6 percent this year, against a predicted drop of 0.1 percent in its latest outlook six months ago.

The EU Commission this month forecast the eurozone's economy would shrink by 0.4 this year. It estimated the wider EU — which includes the ten nations such as Britain that don't use the euro currency — would suffer a 0.1 percent contraction.

Greg Keller in Paris contributed to this report.

Follow Juergen Baetz on Twitter at http://www.twitter.com/jbaetz

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