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Europe to demand structural reform over austerity Europe to demand structural reform over austerity
(35 minutes later)
The European commission will further shift the EU's policy focus from austerity to structural reforms to revive growth when it presents economic recommendations for each member state on Wednesday.The European commission will further shift the EU's policy focus from austerity to structural reforms to revive growth when it presents economic recommendations for each member state on Wednesday.
In its annual assessment as guardian of the EU's budget rules, the commission will say that while fiscal consolidation should continue, its pace can be slower now that a degree of investor confidence in the euro has been restored.In its annual assessment as guardian of the EU's budget rules, the commission will say that while fiscal consolidation should continue, its pace can be slower now that a degree of investor confidence in the euro has been restored.
Because highly indebted governments cannot afford to kickstart growth through public spending, they must reform the way their economies are run – by making labour markets more flexible or by opening up product and services markets.Because highly indebted governments cannot afford to kickstart growth through public spending, they must reform the way their economies are run – by making labour markets more flexible or by opening up product and services markets.
"The main message will be that the emphasis is shifting to structural reforms from austerity," one senior EU official said."The main message will be that the emphasis is shifting to structural reforms from austerity," one senior EU official said.
The recommendations, once approved by EU leaders at a summit in late June, will become binding and are expected to influence how national budgets are drafted for 2014 and onwards.The recommendations, once approved by EU leaders at a summit in late June, will become binding and are expected to influence how national budgets are drafted for 2014 and onwards.
The 17 countries that share the euro will have halved the pace of budget consolidation in 2013 compared with 2012. The overall budget deficit of the eurozone fell by 1.5% of GDP in 2012 but will only shrink a further 0.75% this year, the commission forecast this month.The 17 countries that share the euro will have halved the pace of budget consolidation in 2013 compared with 2012. The overall budget deficit of the eurozone fell by 1.5% of GDP in 2012 but will only shrink a further 0.75% this year, the commission forecast this month.
The United States plans to reduce its budget deficit by 2% of GDP in 2013 against 2012. Unless policies change, the overall eurozone consolidation will be only 0.1% of GDP in 2014, the commision said, against 1% in the US. The US plans to reduce its budget deficit by 2% of GDP in 2013 against 2012. Unless policies change, the overall eurozone consolidation will be only 0.1% of GDP in 2014, the commission said, against 1% in the US.
The commission has already indicated it will give France, the eurozone's second biggest economy, and Spain, the fourth largest, two extra years to bring their budget deficits below the EU ceiling of 3% of GDP, and other countries are expected to get a year's extension.The commission has already indicated it will give France, the eurozone's second biggest economy, and Spain, the fourth largest, two extra years to bring their budget deficits below the EU ceiling of 3% of GDP, and other countries are expected to get a year's extension.
In exchange, both France and Spain will have to commit to broad structural and labour-market reforms intended to make their economies more competitive and help create jobs. Those prescriptions are likely to sit uncomfortably with unions.In exchange, both France and Spain will have to commit to broad structural and labour-market reforms intended to make their economies more competitive and help create jobs. Those prescriptions are likely to sit uncomfortably with unions.
French unemployment is above 10% of the workforce and set to grow. In Spain it is 27%, with more than half of young people without jobs. Spain's rate is more than double the eurozone average of 12%.French unemployment is above 10% of the workforce and set to grow. In Spain it is 27%, with more than half of young people without jobs. Spain's rate is more than double the eurozone average of 12%.
The commission is likely to ask France to tackle the rigid labour code which makes it difficult to fire someone on a permanent contract, making employers reluctant to hire.The commission is likely to ask France to tackle the rigid labour code which makes it difficult to fire someone on a permanent contract, making employers reluctant to hire.
Slovenia, the Netherlands, Portugal and Poland are also likely to get more time to bring down their budget gaps.Slovenia, the Netherlands, Portugal and Poland are also likely to get more time to bring down their budget gaps.