The U.K. should receive two more years to bring its budget deficit under the European Union threshold after the country failed to take “effective action” to trim its borrowing, the European Commission said.
The recommendation would give the U.K. until 2017 to bring its deficit in line with EU targets. Because it isn’t in the euro area, the U.K. isn’t subject to sanctions if it doesn’t meet the deadline, and it also won’t face suspension of its EU funds.
The Brussels-based commission said that Malta and Poland are no longer in breach of the EU’s budget rules, while Finland’s finances are now under review after budget authorities found the government is not currently meeting its targets. France, which is currently in breach of the budget rules, has until June 10 to take action and bring its fiscal projections back on track.
“These recommendations are not about Brussels lecturing governments,” EU Economic Affairs Commissioner Pierre Moscovici said. “They are about encouraging national efforts to deliver the jobs and growth that we collectively need.”
The 28-nation EU faces underlying economic weaknesses and lower long-term growth trends, according to the report. The commission earlier this month projected that growth will be 1.8 percent this year in the EU and 1.5 percent in the 19-nation euro zone, which Wednesday’s report attributed to “largely short-term” factors like low oil prices and a weaker euro.
The commission will decide whether to start an excessive-deficit procedure against Finland once national governments have reviewed the reports. Commission Vice President Valdis Dombrovskis said Finland is “not very far” from the bloc’s 3 percent budget-deficit target and that the nation is working “to correct this situation as soon as possible.”
The U.K. also has made strides to correct its budget gaps, which have been under review since July 2008. Britain needs to continue its efforts because it has not met the EU targets “despite the fiscal consolidation program set out and being implemented,” the commission said.
“The European Commission continues to support the U.K. government’s strategy to create a more resilient economy, including its commitment to deficit reduction. The commission’s recommendations are in line with the government’s approach.”
Alongside the budget reports, the commission also updated its recommendations for countries that are not meeting EU targets for economic performance. In the case of Germany, its too-high current account deficit is offset by the EU’s desire not penalize Germany’s strong economic performance, which is a model for other nations seeking faster growth, Moscovici said.
Overall, the EU’s country recommendations call for improving product, service and labor markets. The report also seeks policy changes to boost investment and to continue financial-sector reforms that will ease the impact of credit tightening in the wake of the financial crisis.
“Strengthening the European economic recovery requires further decisive policy efforts,” Dombrovskis said. “Many member states face challenges such as high public and private debt, low productivity and lack of investment, which result in high unemployment and worsening social conditions.”