Wednesday, July 8, 2009

EU tells nations to curb deficits

BRUSSELS—The European Union on Tuesday gave Poland, Hungary, Romania, Latvia and Lithuania two- and three-year deadlines to curb their budget deficits, which have been swollen by the world financial crisis and its fallout in Eastern Europe.

EU finance ministers gave Poland and Latvia until 2012 to bring the yearly gap between government spending and revenue under the maximum 3 percent of gross domestic product.
They set a 2011 deadline for Hungary, Romania and Lithuania.None of these countries use the euro but they are still required to stick to budget limits in order to minimize the differences between EU economies.

Government debt and deficits have soared over the last year as the financial crisis forced them to spend heavily to rescue banks, shore up their currencies and pay out more in welfare benefits while tax revenues shrank during the downturn.Hungary, Latvia and Romania have tapped billion euro (dollar) bailouts from the European Union, the International Monetary Fund and others to help them pay the bills.

These come with strict conditions attached that require them to make harsh cutbacks.Latvia had to approve spending cuts last month in order to get a second slice of its EU bailout, worth euro1.2 billion, that the EU will borrow on the market and lend to the Baltic nation before the end of the month.EU Economic and Monetary Affairs Commissioner Joaquin Almunia said he knew "the efforts are huge" but said Latvia had to stick strictly to the promised cuts.

Neither Hungary or Romania have ever stuck to the 3 percent limit since they joined the EU. Hungary entered in 2004 and Romania in 2007.Euro member Malta was also given until 2010 to reduce its deficit. Ministers said it could not get a longer deadline because overspending was not linked to the financial crisis.

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