European Commission says Austria, Italy and Lithuania 'at risk' of failing euro budget rules

BRUSSELS – The European Union warned Tuesday another three of the 19 countries that use the euro, including Italy, risk breaking the currency bloc’s budget rules and hinted it could give France some leeway in the wake of the attacks in Paris.

Though the EU’s executive Commission said no country’s draft budget has been found to be seriously in breach of the rules, it said Italy, Austria and Lithuania risk overshooting deficit limits in 2016. It urged the countries to revise their spending plans.

Pierre Moscovici, the EU’s top economy official, indicated France may get a sympathetic hearing at the Commission if the country’s budget plans deteriorate in coming months in the wake of the attacks. The French government has indicated it will boost security spending, which will affect its budget.

“It is a terrible event and the security of citizens in France and everywhere in Europe is the absolute priority and the Commission will certainly show full understanding for that priority,” Moscovici said.

He said flexibility is part of the euro rulebook — the so-called Stability and Growth Pact, or SGP.

“The SGP is often accused of rigidity or even stupidity but I think we’ve shown by our flexible stance that it is neither rigid nor stupid, it is smart and able to adapt to all sorts of situations as they develop,” he said.

Moscovici’s comments came after the Commission published its latest assessment on the budget plans of the eurozone countries. The three countries identified as being at risk of failing to meet their medium-term objectives join Spain, which was warned last month it was in breach of the rules after its government presented budget plans early because of a year-end election.

The euro rulebook encompasses many requirements, the most important one being that countries keep their budget deficits under 3 per cent of annual GDP. If they don’t, they must present plans to do so, or face fines. For Italy, the worry is not about the headline deficit number, which is below the 3 per cent limit, but the country’s ability to handle its debts.

European countries have sought to tighten the rules on budgets since overspending by some countries contributed to a debt crisis that nearly brought down the euro. As part of the better co-ordination, the European Commission regularly assesses national budget plans.

Those under the strictures of a bailout program, currently only Greece and Cyprus, don’t have to present plans. And Portugal didn’t submit them, apparently because it’s effectively without a government following last month’s general election. The others, apart from Spain and including France, had presented plans that were said to be “broadly compliant” with 2016 requirements.

“Obviously, costs associated with what has just happened (in Paris) are not included,” Moscovici said. “We will reassess any impact on the budget when the time is right. It’s too soon to say what the impact will be.”

Commission Vice-President Valdis Dombrovskis said efforts to pursue more responsible budget policies are working in reducing public deficits to a planned 1.7 per cent in 2016 from a projected 1.9 per cent in 2015.

“For the first time since the beginning of the crisis, we see debt starting to fall, too,” he said, referencing Commission forecasts projecting a slight decrease in the eurozone’s debt burden to 90.5 per cent of GDP next year from 91.6 per cent this year.

Eurozone finance ministers will hold a special meeting on budget plans in Brussels on Nov. 23.


Pylas contributed from London.