THE EU Economic and Financial Affairs Council (ECOFIN) yesterday approved the opinion and recommendations of the European Commission on Cyprus’ stability programme as the bloc’s finance ministers told member states they must to more to restrain spending.
Cyprus was represented at the ECOFIN Council by Finance Minister Charilaos Stavrakis, who also participated in the Meeting of the Finance Ministers of the Eurozone, (EUROGROUP).
Stavrakis was not available for comment yesterday on the approval of the island’s stability programme, under which the government’s declared aim is to limit the public deficit to 6.0 per cent of GDP in 2010, compared to a projected 7.0 per cent if no corrective measures were taken, and gradually reduce it to 2.5 per cent of GDP in 2013.
It also aims to limit the increase in public debt from 55.2 per cent of GDP in 2009 to 61.0 per cent in 2013, compared to the projected 60.9 per cent of GDP in 2010 and 80.2 per cent in 2013 if no corrective measures were taken.
The EU finance ministers yesterday sent markets a message that they were serious about controlling debt, in addition to adopting an anti-contagion plan that can be deployed to protect countries that follow Greece into financial difficulties.
“There is a general sense around the table that everybody needs to undergo fiscal consolidation. We have markets that are not at the moment convinced,” said Greek Finance Minister George Papaconstantinou.
European Monetary Affairs Commissioner Olli Rehn said Europe’s recovery from the global recession of 2009 would gain momentum this year and that now was the time to start moving “from fiscal stimulus to fiscal exit”.
That justified the tougher budget strategies of countries such as Spain and Portugal, and also of countries less in need of drastic measures such as Germany, he said.
“There is market uncertainty due to uncertainty about fiscal policy. The cure must be responsible fiscal policy,” Swedish Finance Minister Anders Borg said.
“The countries that have contributed most uncertainty should be the ones that are most ambitious when it comes to solving those problems and probably it will be Spain and Portugal.”
Spain and Portugal, struggling to dispel market concerns that they may suffer debt repayment difficulties, announced further austerity measures in mid-May in return for the protection of the EU’s vast anti-contagion plan.
Finance ministers from the 16 countries that use the euro met late into the evening on Monday to finalise the operational aspects of the plan, which they say could allow access to up to €750 billion if needed to rescue struggling economies.
They were joined yesterday by ministers from the rest of the 27-state EU to discuss extra belt-tightening.
They also approved plans to grant the EU statistics agency more power to audit national budget reports after the experience of years of grossly understated Greek figures that were at the root of the current crisis.
Rehn voiced concern over Bulgaria and said Sofia would be the first port of call once Eurostat had its new powers. Greece became the first country in 11 years of monetary union to require financial rescue and governments have been struggling for months to prevent other countries being shut out in similar fashion from nervous debt-funding markets.
Despite its problems, Europe won words of support overnight from the heads of the International Monetary Fund, Dominique Strauss-Kahn, and the US Federal Reserve, Ben Bernanke.
Bernanke said the anti-contagion package amounted to “a lot of money” and enough to protect Greece, Portugal and Spain from volatile credit markets for a number of years, even if markets were yet to show they felt fully reassured.
“European leadership is strongly committed to doing whatever is necessary to preserve the euro, preserve the euro zone, preserve the European project, and avoid financial problems that would certainly arise,” Bernanke said.
The debt crisis has shaken global markets, but the euro zone is not the only place suffering from a surge in debt as the world emerges from recession. The United States and Japan are also deep in the red, as is Britain.
