THE EUROPEAN Commission yesterday set deadlines between 2012 and 2014/15 for 13 EU countries to slash budget gaps below 3 per cent of GDP, and said it would step up disciplinary budget action against Greece.

The announcement follows agreement by EU finance ministers on Tuesday to start withdrawing fiscal support to the economy from 2011 at the latest as the recovery takes a firmer hold.

Economic and Monetary Affairs Commissioner Joaquin Almunia said cutting the deficits, inflated by the worst economic crisis since the second World War, was needed to prevent a rise in long-term interest rates that would raise the debt-servicing costs.

“I believe the deadlines proposed today are appropriate and realistic,” Mr Almunia said in a statement.

The commission expects the aggregate budget deficit in the euro zone to jump to 6.4 per cent this year and 6.9 per cent next year, from 2.0 per cent in 2008 – more than twice the EU limit of 3 per cent of gross domestic product.

This will boost euro zone debt to 78.2 per cent of GDP this year, 84 per cent in 2010, and 88.2 per cent in 2011 in a trend that could undermine the value of the shared euro currency.

The commission gave Germany, France, Spain, Austria, the Netherlands, the Czech Republic, Slovakia, Slovenia and Portugal until 2013 to bring their deficits below the 3 per cent EU limit.

Ireland and Slovakia said they would meet the deadline.

“Slovakia considers the 2013 date . . . as adequate,” the finance ministry said in a statement.

Germany said on Tuesday it would have a deficit below 3 per cent in 2013, but France said 2013 would be very difficult, and that reducing the shortfall below 3 per cent in 2014 would already be an achievement.

Mr Almunia told a news conference it was very important that both France and Germany should move together in fiscal policy.

“It is extremely important that Germany and France both share the same orientations of their fiscal policies,” Mr Almunia told a news conference.

“That is not to say that France should have exactly the same policies as Germany . . . but both economies should have coherence in the respective economic and fiscal strategies, because if not, economic policy co-ordination and economic governance in Europe is impossible.”

Italy and Belgium got until 2012, Ireland until 2014 and Britain until fiscal year 2014/15.

To reach these goals, which are to be approved by EU finance ministers on December 1st-2nd, governments will have to make deep budget gap cuts every year.

The commission asked Germany and Italy to cut their deficits by 0.5 per cent – the EU benchmark.

Austria, the Netherlands, Belgium and Slovenia should cut by 0.75 per cent a year, and Slovakia and the Czech Republic by 1 per cent.

Portugal and France will have to reduce their shortfalls by 1.25 per cent every year, Spain and Britain by 1.75 per cent, and Ireland will have to slash the gap by 2 per cent annually.

The new deadlines give France, Britain, Ireland and Spain an extra year for the deficit reductions.

This is because they took effective action to cut deficits as requested by EU finance ministers in April, but bad economic conditions made it impossible for them to meet the targets.

Greece did not take action as asked by EU finance ministers, the commission said.

It proposed raising the EU’s disciplinary budget procedure against Athens to one level before fines. – (Reuters)