Brussels is worried about budget deficits

European governments are threatened by higher budget deficits this year than was forecast four months ago, warned the European Commission. In presenting his last economic forecast for 2009 the European Commission said that according to preliminary information deficits in the 27 EU may exceed the average of 6 percent of GDP, predicted in May. „This seems to be mainly due to larger than projected revenue shortfalls in several countries, as growth in production and scale of incentives to meet forecasts of spring,“ announced by the EC.
With the warning are reminded that the most severe recession in the 52-year history of the EU will cause lasting damage to public finances of the union and the average economic growth in the long term.
Politicians from the headquarters of the EU believe that the emergency measures taken to rescue the financial system and combat the recession, were deleted progress during the first 10 years of European monetary union in the direction of consolidation of public finances.
According to estimates of the EC from May in the euro area public debt of 16 nations will be increased significantly to 77.7 percent of GDP this year and 83.8 percent in 2010 and both figures are well above the 60% threshold established by the Treaty of EU countries wishing to adopt the euro.
Private-sector economists estimate that the picture will be much worse if governments fail to take action to address the weaknesses. According to Laurence Boone of Barclays Capital, the public debt in the eurozone jumped to 105 percent of GDP by 2015 if no measures are taken, and the annual inflation will average 2 percent between 2011 and 2015 Greece’s debt will be 149%, of Ireland – 144% of Spain – 135% and that of France – 106%.
The effect of the crisis on long-term growth in Europe will also be cruel. Commission estimates that the potential growth of the eurozone will fall to 0.7 percent this year and in 2010 and will be recovered gradually.
Independent economists say the damage to the economy will prove to be worse in Europe than in the United States. „Nevizhdani levels of credit had been released in Europe,“ said Daniel Gros, director of the Center for European Policy Studies in Brussels.
In its forecast on Monday the European Commission said the EU will register growth compared to the previous quarter by 0.2 percent in the third and 0.1 percent in the fourth. It will mark the end of the recession in Europe, although the drop in GDP for EU countries for 2009 will be 4%.

Tony Barber, Financial Times