EU raps new member Croatia over deficit, debt
(BRUSSELS) - The European Commission said Tuesday new EU member Croatia is in breach of rules on the public deficit and debt and will have to take measures to remedy the problem.
The Commission, the EU's executive arm and responsible for enforcing the bloc's rules, said Croatia should now be put under an "Excessive Deficit Procedure" which lays down the steps it must take to return to EU norms.
The EU sets a ceiling for the annual budget deficit of member states at 3.0 percent of Gross Domestic Product, with accumulated debt not to exceed 60 percent.
Last month, Croatia, which joined the European Union in July, said a revised 2013 budget would show a deficit of 5.5 percent, up from an initial estimate of 3.5 percent.
The Commission said that in 2012, Croatia had a deficit of 5.0 percent and debt at 55.5 percent, noting that the draft 2014 budget adopted earlier this month expects the country to be above the 3.0 percent limit for all 2013-16.
Meanwhile, the debt ratio could hit 62 percent in 2014 and rise further in 2015 and 2016, after topping the 60-percent limit this year, it said.
The Commission said Croatia should now take action -- a combination of spending and revenue controls plus economic reforms -- to produce an annual budget deficit of 4.6 percent next year, 3.5 percent in 2015 and 2.7 percent in 2016.
To achieve those targets, Croatia will have to make adjustments to the public finances equal to 0.5 percent of GDP in 2014, 0.9 percent in 2015 and 0.7 percent in 2016.
This adjustment would also bring the total debt back down towards the 60-percent limit, it said, without giving a precise figure.
These targets are meant to "strike a balance between the need to take into account the weak economic conditions and the urgency of the fiscal adjustment," it said.
Extended out to 2016, the changes will "enable Croatia to pursue much-needed structural reforms in parallel with fiscal consolidation, addressing weak growth," it added.
The recommendation will be put up for approval in April next year by all EU member states, many of whom are also at fault over the deficit and debt limits.
Separately, EU finance ministers Tuesday found Poland had failed to comply with 2013 recommendations on how to bring its public deficit back into line but allowed it one more year to 2015 to meet the target.
Poland should post a headline deficit of 4.8 percent this year, 3.9 percent in 2014 and 2.8 percent in 2015, they said in a statement.
Poland has been under an EDP since 2009 and in June the EU had agreed to give it two more years to 2014 under rules allowing for discretion over the target date in light of a country's efforts and its economic situation.
The EU has made tightening up the fiscal rules a key part of efforts to tame the financial and debt crises and put the bloc's economy back on a sounder footing.
Croatia Excessive Deficit Procedure - background information