By: DailyForex.com
Members of the Eurozone bloc are supposed to ensure that their deficit spending does not exceed 3% of their Gross Domestic Products. This was one of the convergence criteria for joining the single European currency and was intended to ensure the economic credibility of the venture. However, the Greeks fudged their figures when joining the Euro and their problems were hugely exacerbated by the global financial crisis which also caused other EU states to exceed the agreed budgetary discipline whilst trying to mitigate the worst economic crisis since the Great Depression.
Most EU states are trying to rein back their deficits through austerity measures designed to reduce public expenditure, but come at the price of significant unpopularity and slowed economic output. Increasingly, there have been calls for austerity programmes to be tempered and for targeted government spending to be increased, notably on infrastructure projects, to stimulate economic growth.
The European Commission (EC) announced on Wednesday that it intended to relax the agreed timelines for six Eurozone member states to reduce their deficits. The six nations are Spain, France, Portugal, Poland, Slovenia and the Netherlands. The period is being extended by two years in the cases of France, Spain, Poland and Slovenia whilst the Netherlands and Portugal have been granted twelve month extensions. The EC was at pains to explain that the extensions had been granted on economic rather than political grounds. The EC is urging other member states such as the UK and Germany to change course somewhat. Germany was advised to improve competitiveness through greater flexibility in employment and through permitting wages to increase. The UK needs to address the cost and quality of childcare; enhance youth training schemes and improve housing supply and the rental market. It also suggested that more needs to be spent on the transport infrastructure.
The message from major players such as the EC, OECD and IMF seems to be increasingly clear that nations need to adjust austerity plans to encourage greater economic growth in parallel with deficit reduction strategies.