Eurozone finance ministers will be concentrating on partnership – as opposed to punishment – at a meeting on Friday (22 November) where they will discuss and defend their draft budget plans. The distinction was first made by Olli Rehn, the European commissioner for economic and monetary affairs, when presenting the Commission’s opinions on the national budget plans for 2014 on Friday (15 November).

The Commission opinions on draft eurozone budgets were the first under new economic governance rules.

This is the first discussion by the Eurogroup of eurozone finance ministers of the Commission’s opinions. But EU diplomats do not expect ministers to adopt firm commitments in response to the opinions.

The governments of both Spain and the Italy, whose budgets have prompted the greatest concerns within the Commission, have already moved to play down the conclusions. Both said the Commission’s growth forecasts were overly conservative and did not include upcoming fiscal reforms. The Italian government also noted that it was in the latter stages of a spending review and that the Commission ignored certain privatisation plans.

Too optimistic

While the Commission commended Spain for having taken “effective action” to ensure compliance with EU rules in 2013, it said the government’s 2014 budget was vague and overly optimistic. In particular, the Commission chastised Madrid for its short-termism, with no indication as to how it would reduce current deficit levels – around 6% – to the EU-mandated 3% by 2016.

As for Italy, the Commission found that the government’s planned structural reforms were not sufficient to ensure that national debt, which will peak at 133% of the Italian gross domestic product in 2013 will start to decrease in 2014. Consequently, according to the Commission, Italy would not be eligible for a special EU rule that excludes certain growth-friendly investments made by member state governments from the Commission’s debt assessments. This is a blow for the Italian government, which had foreseen such investments in its “pro-growth” 2014 draft budget.

The Commission predicted that at least five eurozone member states – Italy, Spain, Finland, Malta and Luxembourg – would in 2014 break the EU’s growth and stability pact, which limits member states’ levels of debt and deficit. “In a number of cases, there is scope for significant improvements”, said Rehn. The Commission can propose fines for member states that breach EU rules on maximum debt and deficit levels.

The Commission found that France and the Netherlands’ budget plans for 2014 were only just compliant.

Its opinions that Finland and Luxembourg would break EU rules on total levels of government debt had little impact in either country. Luxembourg’s politicians are currently negotiating a new coalition government.

This is the third time that Eurozone finance ministers have met in two weeks and the pace will be maintained, with EU leaders aiming to agree amongst themselves before the end of the year on how to complete a framework for an EU bank resolution authority, part of the EU’s planned banking union. This would bring the EU’s largest banks under a single regulatory system, so as to ensure greater stability and confidence, and a level playing-field for the banking sector.

EU finance ministers meeting on Friday (15 November) announced that they had been unable to overcome differences over the proposal. In particular, Germany favours a bank resolution fund that is controlled by member states, which has power only over larger banks, and which cannot use EU funds to directly recapitalise banks.

The Commission’s proposal, which is supported by several member states, including France and Spain, would give the final say over the fund’s decisions to the Commission. It would allow for direct recapitalisation, which is meant to prevent bad banks from bankrupting weak member states.

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