EU finance ministers hail deficit cuts in big member states

European Union (EU) finance ministers hailed in Luxembourg on Tuesday budget cuts in Germany, France and Italy, saying the three big EU member states will simultaneously squeeze their deficits below euro limits in 2007 for the first time in seven years.

France, which pushed its deficit below the ceiling of 3 percent of gross domestic product last year, will be joined by Germany this year and by Italy in 2007, European Monetary Commissioner Joaquin Almunia said.

Germany's deficit may slip under 2.6 percent this year, while in France "the situation has improved," and in Italy, home to Europe's heaviest debt burden, a 2007 deficit under the limit is " viable," Almunia told a news conference in Luxembourg after a meeting of EU finance ministers.

Shrinking deficits put an end to years of wrangling over the budget rules, originally designed by Germany to create confidence in the euro.

In a turnabout last year, Germany led the way in watering the rules down to escape penalties for violating them.

Much of the credit for the narrower deficits goes to a pickup in economic growth, which is likely to reach 2.5 percent in 2006, the fastest pace in six years, the European Commission, the EU's executive arm predicts.

However, European Central Bank (ECB) President Jean-Claude Trichet has warned governments against letting their guard down now that the economy is rebounding, saying now is the time to crack down on deficit spending.

Rising ECB interest rates may also upset governments' fiscal plans. The ECB raised its main rate last week for the fifth time in 10 months, to 3.25 percent, and signaled it will boost borrowing costs again in December to prevent faster growth from fueling inflation.

French Finance Minister Thierry Breton expects to trim the budget gap in 2007 to 2.5 percent of gross domestic product, the lowest since 2001, from an estimated 2.7 percent this year.

"We have not found one-off measures -- that is a very positive element," Almunia said of France's 2007 plans.

Almunia and Luxembourg Prime and Finance Minister Jean- Claude Juncker, chairman of the panel of euro ministers, gave their seal of approval to Italy's steps to end a five-year skein of excessive deficits next year.

"The results are improving and looking at the budget for next year we think it is viable to have for 2007 the deficit in Italy below 3 percent," Almunia said.

Greece is likely to bring its deficit in line in 2006 for the first time in six years, Almunia said.

Source: Xinhua