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EU keeps five states on tenterhooks over deficit targets

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EU keeps five states on tenterhooks over deficit targets

Olli Rehn - Photo EC

(BRUSSELS) - Five states which risk fines under new EU laws must wait until January to see if promised 2012 budget cuts are sufficient to avoid sanctions, Economic Affairs Commissioner Olli Rehn said on Monday.

Belgium, Cyprus and Malta from the eurozone plus Hungary and Poland were each warned by Rehn last month that they had to present new measures by mid-December to ensure they met a 2012 deadline to correct excessive deficits.

"All five countries have since taken steps to remedy the excessive deficit and reduce their debt," Rehn said on the eve of a so-called 'six-pack' of legislation covering budgetary discipline entering force.

"As these responses are still very recent and not specified it would be premature for me to present any final conclusions as to whether the steps presented would be sufficient.

"We'll be able to make this judgement early January, but as you see the new system is already delivering," he said referring to responses to letters warning these governments to act.

The six-pack was the result of earlier moves to tighten budgetary discipline, and is not to be confused with a further pact to draw up an inter-governmental treaty agreed in principle by 26 or the 27 EU governments -- minus Britain -- at a summit on Friday.

Under the new deal, which faces legal questions from British and other opponents, the governments will aim to meet a new 0.5-percent-of-GDP limit for annual structural deficits -- meaning deficits once debt repayments and the effect of economic fluctuations are stripped out from calculations.

The six-pack sees countries in breach of deficits docked an interest-bearing deposit that could eventually be converted into a fine for eurozone countries if corrective action if not forthcoming.

A European Commission recommendation for a fine, which lies in Rehn's power, will be applied unless a majority of EU states based on weighted voting strength decides to overturn the decision.

EU states already have deadlines set by the commission to return their annual deficits to under three percent of GDP -- a threshold enshrined in EU law -- but so far there has been nothing to force them to do so.

After Rehn's warning last month, Belgian parties who had been squabbling for nearly 600 days, finally agreed on a budget and formed a new government under premier Elio Di Rupo.

Belgium will trim 11.3 billion euros off its deficit next year and some 20 billion in all by 2015.

EU Economic governance "Six-Pack" - guide

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