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ANDREW WILLIS

Today @ 09:17 CET

EUOBSERVER / BRUSSELS - The European Commission has said member state

growth assumptions in budgetary plans submitted to Brussels are overly optimistic,
suggesting upcoming national deficits could be worse than governments predict.
 É

Commenting on Wednesday (17 March) on the member state plans - known as stability
and convergence programmes in EU parlance - the commission also said several
member states need to provided greater details on how they intended to rein in their
runaway budgets.

‘
The main risks to consolidation stem from somewhat optimistic macroeconomic
assumptions and the lack of specification of consolidating measures, EU economic and
monetary affairs commissioner Olli Rehn said in a statement.

Falling government revenues, combined with stimulus spending and greater

unemployment payouts in the wake of the financial crisis, have resulted in a vast
majority of EU countries being in breach of the bloc's three percent of GDP deficit limit,
giving governments a headache as they attempt to rectify the slippage while
simultaneously promoting growth.

Their positions are not all identical however, with officials grouping them into three
broad categories. Germany, the Netherlands, Austria, Sweden, and Finland still have
some fiscal room for manoeuvre, with Berlin, for example, intending to increase its
deficit this year before starting consolidation in 2011.

However the commission said that Germany's ruling centre-right coalition had yet to
explain how it planned to reconcile fiscal austerity with promised tax cuts.

Portugal, Ireland and the UK on the other hand, are countries where consolidation must
start right away, indicated officials. Ireland has already introduced a number of very
tough budgets last year, while Lisbon announced plans to sell state assets this week in a
bid to raise revenues.

A leaked draft of Wednesday's commission assessment forced UK finance minister

Alistair Darling to defend the government's consolidation plans. It's the toughest and it
is the most aggressive plan of any advanced economy, he said. I think to go further
and faster than that ...would run the risk of seriously derailing the recovery.

Of the remaining countries who saw their plans assessed, France, Spain, Italy, Belgium
and Slovakia were placed somewhere in the middle, with limited room for manoeuvre.

Spain was told that its prediction to dip below the three percent deficit limit in 2013,
from a deficit of 11.4 percent this year, was based on markedly optimistic growth
forecasts of 1.8 per cent next year, 2.9 per cent in 2012 and 3.1 per cent in 2013.
 w

Italy and France were also told their growth forecasts were overly optimistic, while
Italy's debt pile of over 100 percent of GDP and the country's excessive regional
spending were cause for concern.

The dangers of poor public finances have been amply demonstrated by Greece in recent
months, with market fears pushing the country's borrowing costs up and raising the
spectre of a possible debt default.

But speaking after a meeting on Wednesday evening with the country's prime minister,
George Papandreou, commission president Jose Manuel Barroso said the situation had
calmed down in Greece.

He said Athens was on track to reduce it deficit by four percent this year, as promised,
and that the euro area was ready to provide financial support if needed.

For his part, Mr Papandreou did not rule out turning to the IMF for help if EU leaders
failed to approve the financial aid plan at a summit in Brussels next week.