BRUSSELSN, Jan 21 - The EU risks missing ambitious economic goals it wants to achieve by the end of the decade and several member states are showing a worrying inability to cut their deficits, the European Commission said on Wednesday. The stark warning came in its assessment of how well states had followed economic policy guidelines set for the 2003-2005 period and follows a year in which Germany and France sparked a row over budgets that is heading for the courts. The European Union executive said there was a clear risk that the guidelines would not be fully implemented by 2006 -- a failure which would jeopardise the bloc's ambition to become the most competitive and dynamic economy by 2010. "The overall implementation levels and the progress made in member states are still insufficient and there are still major problems in some areas which are holding back the strategy as a whole and may inhibit the return to strong growth," it said in a paper which it will forward to an EU summit in March.
"The rapid deterioration in budgetary positions in several member states and the lack of resolve to address the (excessive deficit) situation is a source of great concern," a supporting document added. Economic slowdown, such as the one suffered recently by the EU, was not an excuse to postpone reforms as cutting deficits could help growth by bolstering confidence, the Commission said. Economic recovery was expected to gather momentum in 2004, and EU growth could approach 2.5 percent in 2005. The scale of the challenge faced by the EU as it seeks to meet its 2010 goals was underscored as the bloc has fallen further behind the United States when it came to labour productivity growth. The growth rate in productivity per person employed in Europe is now fluctuating between 0.5 percent and one percent compared with around two percent in the United States. This highlighted the need to stimulate market integration, business dynamism and investment, the Commission said, adding that Luxembourg, Ireland and Belgium had the best results. Moreover, it was not yet time to give up on the EU's 2010 goals: "It is not too late...if we take action this year, we can make the 2010 target," said Gerassimos Thomas, the Commission's economic and monetary affairs spokesman.
ROOM TO IMPROVE
Belgium, Denmark, Germany, Ireland, the Netherlands, Austria, Portugal, Finland, and Britain appeared to be addressing the overall challenges satisfactorily but others had scope for improvements, the Commission said. But some of these countries were among those urged to make more effort to curb their deficits. "Long-term sustainability of public finances, particularly in view of the ageing population, is not yet secured in about half of the Member States, notably Belgium, Germany, Greece, Spain, France, Italy, and Portugal." "Half of the euro area member states made insufficient progress towards sound public finances in 2003," it added. Germany and France -- the two countries for which EU finance ministers suspended the bloc's budget rules last year -- had not taken enough steps to bring their deficits below the EU cap of three percent of gross domestic product this year. More importantly, there was a "substantial risk" Germany could break the limit for a fourth year in a row in 2005. Portugal, which topped that ceiling in 2001, risked topping it anew in 2004 if it did not take more belt-tightening steps. Budget policy should continue to be guided by the Stability and Growth Pact, in which the deficit limit is enshrined and which was suspended by EU finance ministers in November.
The Commission said labour market reform had to be stepped up, particularly as the effects of the slowdown started to be felt more strongly in the job market in 2003. "Given the sluggish recovery and some persistent inflexibilities, very little job creation is foreseen for 2004 and the unemployment rate should continue to rise slightly to 8.2 percent in 2004 (9.1 percent in the euro area) before heading downwards in 2005." It warned that the EU risked missing the end-decade goals of lifting employment rates it had set itself in 2000 without more reforms.//