Germany, Italy and France must pursue greater fiscal consolidation to achieve the European Union goal of balanced budgets in the medium-term, the European Commission said today.
In its assessment of 11 member states' medium-term fiscal programmes, the EU executive warned that Germany's budget adjustment effort "is not sufficient to achieve the medium-term objective of close to balance or in surplus".
Germany should manage to bring its deficit down from 3.9 per cent of gross domestic product in 2004 to just below the EU ceiling of three per cent of GDP this year, as promised after three years over the limit, it said.
But the euro zone's biggest economy was relying on a single one-off measure to meet its target of a 2.9 per cent deficit in 2005, and growth could be lower than the government's 1.7 per cent forecast, it said.
The Commission said Berlin's efforts to narrow the deficit "remain quite small in the later years" of its four-year plan, but it said the government's budget strategy put Germany in a relatively favourable position with regard to the long-term sustainability of its public finances.
The EU executive was most critical of Italy's efforts to curb its deficit, pointing to risks both from optimistic growth forecasts and in the implementation of Prime Minister Silvio Berlusconi's budget strategy.
The Commission said Rome was relying on budgeted one-off measures which carried uncertainties such as the accounting classification of ANAS, a company charged with road maintenance. It also urged Italy, which has the highest debt ratio in the euro zone at 106 per cent of GDP, to achieve a faster pace of debt reduction by balancing its budget.
The Commission lauded Finland and Ireland, saying they fully met the requirements of EU budget rules in the largely discredited Stability and Growth Pact.
It said Belgium, too, deserved praise for keeping its high debt on a downward path and maintaining a budget surplus.