BRUSSELS --Half of the 12 countries using the euro are projected to break the European Union's budget deficit rules this year as the continent's economic growth continues to lag far behind the rest of the world's, the EU's head office reported yesterday.
The euro zone will see growth in 2004 of only 1.7 percent, compared with projections of 4.2 percent in the United States, 3.4 percent in Japan, and around 7 percent for the rest of Asia, the European Commission said.
While the euro area is accelerating from last year's anemic 0.4 percent growth, the commission trimmed its 2004 prognosis from last fall's 1.8 percent because "overall, the balance of risks appears to have shifted toward the downside in recent months," the report said.
EU economics commissioner Pedro Solbes blamed a lack of progress in reforming labor markets, pensions, and healthcare systems by governments afraid of paying a price at the polls -- as happened last month in France.
"The problem is not the strategy but the implementation," he said. More must be done to convince Europeans that "modernization" would create "more growth and more jobs -- in fact better jobs" and avoid shifting massive debts to the next generation.
Other negatives weighing on growth and consumer confidence are rising oil prices, another potential rise in the euro exchange rate, and the threat of further terrorist attacks.
Illustrating the continent's poor economic state, the report said four more countries were expected to join Germany and France -- continental Europe's biggest and sickest economies -- in breaking budget rules this year. They are the Netherlands, Greece, Italy, and Portugal.
Under the stability pact adopted ahead of the single currency, governments are required to keep their budget deficits below 3 percent of gross domestic product.
New figures show the Netherlands and Britain exceeded the cap last year.
While Britain's problems look already solved, the Dutch face their sharpest economic downturn in more than 20 years.
The Netherlands, France, Italy, and Portugal are forecast to break it again next year.
France escaped punishment last year, along with Germany, by promising to rein in red ink by 2005, but the commission said the French deficit would likely shrink "only marginally," to 3.6 percent in 2005 from 3.7 percent in 2004 and 4.1 percent in 2003. France's own deficit forecast is 3.6 percent for this year and 2.9 percent in 2005. But after last month's punishing regional elections, President Jacques Chirac's government signaled it will slow an overhaul of health insurance and jobless benefits -- making budget balancing all the harder to achieve.
Italy was facing the biggest potential breach next year, with its deficit forecast to climb to 4 percent from 3.2 percent this year. The commission said it expected revenue from sales of public property this year to bring in less than the government was expecting.
Germany and Greece both should be at 2.8 percent in 2005, but the commission warned of uncertainties.
The report noted Europe's turnaround in the second half of 2003 was driven by external factors, as booming growth elsewhere raised demand for European exports, despite the sharp appreciation in the euro's value.
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