Nations’ spending plans criticised

The European Union has confronted the euro area’s biggest economies over their spending plans for next year as austerity demands restrain the bloc’s recovery from the longest recession in its history.

The EU said Germany has made no progress in following recommendations to spur domestic demand, that Spain’s budget risked missing deficit targets and that Italy’s 2014 plan was at risk of breaching debt-reduction rules.

The budget plans of euro-area countries “still do not pay sufficient attention” to fiscal consolidation, EU Economic and Monetary Affairs Commissioner Olli Rehn said. “Continued progress with sound public finances should be supported by growth-friendly structural measures.”

Germany, came in for criticism days after the commission opened an in-depth probe into German current account surpluses.

“Our recommendation obviously to Germany is please implement or decide on these kind of economic reforms that would further reinforce domestic demand” and boost public and private investment, Rehn said. “We have recommended to Germany to address this for the sake of the Germans themselves and the eurozone in its entirety,” he said.

The commission said. “As soon as a new federal government takes office, national authorities are encouraged to submit an updated draft budgetary plan.”

The EU said Germany should make public spending on healthcare and long-term care more cost effective, improve the efficiency of the tax system, spend more on education and research, and reduce high taxes and social security contributions, especially for low-wage earners. The warnings are the first use of new powers governments have given the European Commission to review nations’ budget plans.

— Bloomberg


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