Softer Austerity Message As EU Sets New Budget Goals

The Wall Street Journal

By MATINA STEVIS and LAURENCE NORMAN

BRUSSELS—The European Commission confirmed Wednesday that it was giving France, Spain, the Netherlands and two other countries extra time to meet their deficit targets as Brussels softened its insistence on austerity-first policies.

France, the European Union's second-biggest economy, received two extra years to cut its deficit to 3% of gross domestic product, pushing the deadline to 2015. The commission is proposing a deficit target of 3.9% of GDP for this year and 3.6% in 2014.

European Commission President José Manuel Barroso urged France to use the extra time "wisely" to restore lost competitiveness, by reducing labor and social security costs. "We're not offering an easy way out, we're being demanding," he said at a news conference.

The Netherlands, another core European economy, should get an additional year to slim its standard 3% deficit goal, the European Commission said. It set a 3.6% target for 2013.

The commission recommended that Spain should also have an extra two years to reduce its budget gap, meaning Madrid now has until 2016 to hit the 3% threshold. Last year, Spain was given until 2014 to meet the 3% target. Spain's new deficit targets should be 6.5% in 2013, 5.8% in 2014 and 4.2% in 2015, the EU's executive recommended.

The commission also recommends giving Slovenia and Poland two extra years to meet their targets.

The EU executive cited worse-than-expected economic performance in these countries as the basis for the recommended leniency, another step in acknowledging that aggressive cuts in public spending may be crippling European economies that are already shrinking or growing anemically. The commission had already signaled earlier this month that it would ease up on fiscal targets.

Mr. Barroso called on EU governments to speed up structural reforms and finalize an ambitious plan for creating a banking union to jump-start growth.

"While fiscal consolidation is ongoing and should continue, with the pace reflecting the situation in each country, states should intensify efforts on structural reforms," Mr. Barroso said.

The countries given more time must set out how they will meet the new deficit goals by Oct. 1, according to the commission proposals.

Most other EU countries not in a bailout program must meet the 3% deficit goal this year. The commission had already agreed to give Portugal until 2015 to reach the 3% threshold.

All of Wednesday's recommendations require approval by EU member states in the coming weeks.

On Wednesday, the commission removed Italy, Latvia, Lithuania, Romania and Hungary from the so-called Excessive Deficit Procedure, which can see countries fined if they don't take action to meet their fiscal goals. The action indicates that the EU executive is no longer so concerned about those countries.

Until Wednesday, 20 of the 27 EU member states had been under the procedure.

The commission gave Belgium's six-party government until September to take new measures to get its fiscal situation in order or risk a fine. The country will stay under deficit surveillance. The EU executive also placed Malta in its deficit-monitoring program.

The commission also said that Slovenia, whose banking troubles have led to speculation it may need a bailout, must undertake an independent audit of its financial sector.

—Tom Fairless contributed to this article.

Write to Matina Stevis at matina.stevis@dowjones.com and Laurence Norman at laurence.norman@dowjones.com