FRANKFURT (MNI) – The European Central Bank warned Thursday against
flagging commitment to deficit reduction in the Eurozone, despite
governments’ pledges last May to “adhere to the letter and the spirit”
of fiscal consolidation.

“Overall, current policies and plans give rise to concern for a
number of reasons,” the central bank said in its Monthly Bulletin.

The first reason for worry is the opportunity missed by some
countries to front-load consolidation last year, “when the macroeconomic
environment was more favourable than expected,” it said.

The central bank also stressed that “major increases in the
consolidation efforts” would be needed to ensure compliance with the
Council recommendations until the excessive deficit levels are under
control.

The third reason is the lack of convincing urgency seen in member
states’ consolidation plans, it said.

“In these times of high uncertainty, governments have yet to
demonstrate convincingly the seriousness of their consolidation
promises, which require strict compliance with the deadlines and
targets” set under the excessive deficit procedures, it said.

Noting “the still precarious fiscal situation in a number of
countries”, the ECB stressed that efforts to bring public finances under
control “needs to be sustained and confirmed in the forthcoming updates
of the stability programmes.”

“In particular, countries need to specify concrete policy actions
to underpin the credibility of their fiscal consolidation targets to
ensure a rapid correction of excessive deficits and a return to a
close-to-balance or surplus position over the medium term.”

“Given that countries are still far away from their medium-term
fiscal objectives, structural consolidation efforts will need to exceed
significantly the benchmark of 0.5% of GDP per annum set in the
Stability and Growth Pact,” ECB said.

“In countries with high government deficit and/or debt ratios, the
annual structural adjustment should reach at least 1.0% of GDP to
achieve a sufficient decline in the debt ratio and to safeguard fiscal
sustainability.”

— Frankfurt bureau: +49 69 720 142; email: frankfurt@marketnews.com —

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