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EU extends budget deficit reduction targets for six Member States

FXstreet.com (Barcelona) - According to the economic guidelines for the 27 EU Member States, published by the European Commission on Wednesday, more emphasis should be put on measures aimed at spurring growth in the area, rather than on austerity.

“Now is the time to step up the fundamental economic reforms that will deliver growth and jobs, which our citizens, especially our young people, anxiously expect,” European Commission president José Manuel Barroso said at a press conference following the release of the national budgets review.

“This is the only way to address the two lasting legacies of this crisis – the serious loss of competitiveness in many of our Member States, and persistent unemployment, with all its social consequences.”

Brussels announced that six EU countries had been granted more time to bring down their budget deficits below the 3% of GDP limit. France, Spain, Poland, Slovenia will have two more years for implementing structural reforms while the Netherlands and Portugal were given one extra year.

At the press conference José Manuel Barroso said that France is expected to use the additional time to realize labor and pension reforms and deal with its economic competitiveness problems.

On the other hand, the European Commission recognized Italy's success in reducing its deficit below the 3% limit and eliminated it from the list of EU countries under the 'excessive deficit procedure' together with Hungary, Latvia, Lithuania and Romania. Barroso stressed however that the country should continue carrying out its austerity program, as its national debt still exceeds 120% of GDP.

EU leaders are expected to give the green light to the recommendations during the June summit.

Marc Chandler, Global Head of Currency Strategy at BBH comments on European Commissions decisions: “Barroso wants countries to use the 'grace period' to take the structural reforms necessary to boost competitiveness. This of course is easier said than done.  What needs to be done seems clear.  We think that World Bank's Doing Business studies offer insight into low hanging fruit to bolster entrepreneurial activity, from easing the procedures and costs to start a business, register property, through closing  businesses.  The problem, at the risk of over simplifying, political in nature--the balance of power between rent seekers and profit-seekers.”

American equity markets pare early week gains

The US stock market opened managed to open lower Wednesday, with little happening across the United States data wires. The focus this morning has been squarely elsewhere in Europe and in Canada, which is set to unveil its rate decision. In the United States, the Redbook Index (YoY) (May 19) grew +2.7% in May, compared to a figure of +2.4% previously. In addition, the Redbook Index (MoM) (May 19) has climbed +0.6%, marking an improvement vs. a previous result of +0.5%.
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