Holland will be given an extra year to reduce its deficit to 3%, while France and Spain will be given an extra two years. Italy will also be granted absolution from ‘intensive fiscal monitoring’ – despite a decision by its new prime minister to reverse a series of tax increases brought in by his predecessor.
But the EC is adamant it isn’t entirely abandoning is hard line on austerity: the report will criticize ‘several governments’ for their inability to take the necessary steps to bring about fiscal reform, including France, Spain, Belgium and even the UK – although its position outside the eurozone means we will avoid the lion’s share of the EC’s wrath.
Some economies could even face sanctions under new ‘macroeconomic imbalances’ rules granted to the EC earlier this year, which give it the power to override governments and impose its own economic reforms. If they don’t co-operate, it will hand them a substantial fine instead. Slovenia could be the first country to come under the EC’s spotlight – although there’s a good chance it will get off with a warning.
Needless to say, European markets have reacted with all the enthusiasm of a Frenchman at a British chippie. The FTSE 100 has dropped by 1.13%, while Germany’s Dax is down 0.97% and the French Cac is down 1.01%.
That probably hasn’t been helped by a series of depressing International growth forecasts. The International Monetary Fund kicked things off this morning by cutting its Chinese growth forecast from 8% to 7.75% - after which the OECD trimmed its forecast for global growth to 3.1% for this year and 4% next year – down from its November forecasts
Read more: Eurozone eases restrictions on Spain, France and the Netherlands
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