December 8, 2014 / 11:38 AM / 3 years ago

Euro ministers tell France, Italy to trim budgets more

BRUSSELS (Reuters) - Euro zone finance ministers told France and Italy on Monday to take quick steps to rein in their deficits in line with EU rules, threatening disciplinary action but also indicating some wiggle room might be given.

The ministers met to discuss draft 2015 budgets of euro zone countries, with Paris and Rome in focus because the drafts for both are at risk of breaking European Union rules. France is also facing criticism for badly missing its 2014 targets.

The European Commission, the guardian of EU laws, has delayed judgment on the French and Italian plans until early March. But if still found wanting on consolidation then, France could be fined and Italy put under a disciplinary procedure.

Under rules set out in the EU's Stability and Growth Pact, countries must cut their structural deficits, stripping out the effect of the business cycle and one-off items, by 0.5 percent of GDP every year until budgets are balanced or in surplus.

Italy, in recession and with a huge and rising public debt, has said it will cut its structural deficit by just 0.1 percent next year. But ministers said the debt must be tackled even if it was a big challenge given low inflation and falling output.

"Effective measures would be needed to allow for an improvement of the structural effort," they said.

The chairman of euro zone ministers Jeroen Dijsselbloem told a news conference that Italy's 0.4 percentage point shortfall could be filled by new measures or by convincing the Commission of the effectiveness of measures already on the table.

"The third possibility is that the Commission, on the basis of later assessments, finds that 0.1 is maybe in fact 0.2. All of this can happen," Dijsselbloem said.

German Finance Minister Wolfgang Schaeuble arrives to attend a euro zone finance ministers meeting in Brussels December 8, 2014.Francois Lenoir

"That's why we will give ourselves and the countries involved more time, and the time has to be used to close the gap."

Italian Prime Minister Matteo Renzi reluctantly amended his original budget plan in October in the face of European Commission objections, offering some 4.5 billion euros of additional deficit cuts worth around 0.3 percent of GDP.

But with the euro zone's third-biggest economy mired in recession and unemployment above 13 percent, the highest level since the 1970s, he wants to avoid further spending reductions.

A spokesman for Italian Finance Minister Pier Carlo Padoan said Italy saw no request for additional budget measures and that the country would instead seek to speed up the implementation of reforms already proposed.

France, whose economy is growing but whose unpopular government has little power to enact reforms, was asked by EU ministers in June 2013 to cut its structural deficit by 0.8 percent in both 2014 and 2015. Yet the adjustment this year will be closer to 0.1 percent, reaching 0.3 percent next year.

The ministers said in a statement that additional measures were needed.

EU Economic Affairs Commissioner Pierre Moscovici, French finance minister until eight months ago, underlined that the March assessment would keep all options open, including a fine for Paris. But he stressed that the point of the rules was not to punish but to get countries to do the right thing and reform.

In an interview with German newspaper Die Welt on Sunday, German Chancellor Angela Merkel called on Italy and France to enact additional measures, irritating both.

Finance Minister Wolfgang Schaeuble was more conciliatory on Monday, offering some praise for French and Italian reform efforts and saying Berlin ought to do more itself.

Writing by Jan Strupczewski; Editing by Philip Blenkinsop and Catherine Evans

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