Austerity still a buzzword in eurozone budget wrangling
By Aurilia End, AFPPARIS--While growth and recovery are back as buzzwords in European budgets for next year, rigor and austerity still remain hard at work in several countries.
October 21, 2013, 12:02 am TWN
Eurozone finance ministries had until last Tuesday to send the European Commission in Brussels their draft budgets for 2014 and show that they respect the new rules known as the “Two Pack.”
One of the reforms in response to the eurozone debt crisis, is greatly increased policing of EU rules to contain public deficits to 3.0 percent of gross domestic product.
The public deficit covers the budgets of governments, welfare programs and local authorities.
And for the first time, the European Commission can demand that a government change its budget if it appears lax or unrealistic.
The term “Two Pack” refers to this right to police budgets, and also to strengthened supervision of countries in trouble or at risk of being so.
They form part of a “Six Pack” of new measures which tighten penalties for all 28 European Union members if they breach budget rules, and an obligation for 25 of them to balance budgets in the medium term.
The measures, together with a new framework to strengthen banks, caused great controversy because they imply dilution of sovereignty and reignited debate about the need for a common economic policy, and a so-called transfer union in which rich countries would automatically support the weaker.
But despite the new EU budget powers, the governments have made a point of insisting that the commission had not dictated their choices, and they put the emphasis on supporting growth.
Germany, the eurozone's biggest economy, came top of the class of 17, presenting a balanced budget, and raising the possibility of a small structural surplus at the federal-state level.
In Italy, Prime Minister Enrico Letta, whose government recently survived an abortive attempt to topple it, expressed satisfaction at meeting the deadline in time, albeit at the last minute.
Letta emphasized that his budget for next year was the first for some time which “does not begin with cuts by the scissors or new taxes to satisfy Brussels.”
Italy is to ease taxation on workers and employers by 27.3 billion euros (US$37.3 billion) over three years, and to finance investment.
Belgium has submitted a budget showing a deficit of 2.15 percent of GDP, owing to cuts in expenditure and extra taxes on biofuels.
But France will not cross the 3.0-percent line before 2015. The government has made much of its “sovereignty” and of going for “growth and jobs,” but has also stressed it will cut public expenditure by 15 billion euros.
However, for members rescued by the International Monetary Fund and the European Union, budget rigor is still the guiding factor.
Portugal, still struggling hard to meet rescue conditions, is to cut its public deficit by 3.9 billion euros.
But the government has also set in motion a progressive reduction of corporate taxation, lowering the rate from 25.0 percent in 2013 to 17.0-19.0 percent in 2016.
Ireland, with growth on the horizon, hopes to emerge from its rescue program next year. The government has outlined the seventh austerity budget in a row to reduce the deficit by a further 2.5 billion euros.