RTTNews - Lithuania, Romania and Hungary need to reduce their budget deficits to below 3% of gross domestic product by 2011, EU finance ministers said at their monthly meeting on Tuesday. Poland and Latvia should cut their deficit to target level by 2012.
EU ministers recommended Hungary to take actions to slash their deficit. For the introduction of euro, nations must keep their budget deficits below 3% of GDP.
According to IMF estimates, the eight former communist states outside the eurozone that became members of the EU in this decade would post, on average, budget deficits equivalent to 3.9% of GDP in 2009, larger than prior year's 2.9%. Non-compliance of this rule could delay euro adoption.
In other news, the Financial Times reported that a new European Union legislation, to be unveiled in October, will force banks to strengthen their capital reserves. A draft report to be circulated among finance ministers on Tuesday would have a strong case for altering the existing rules on bank's funding needs.
After a meeting of finance ministers from euro area in Brussels on Monday, President of Eurogroup Jean-Claude Juncker said time has not reached to exit stimulus measures. Juncker is also Luxembourg's Prime Minister and Finance Minister.
We haven't reached the time yet at which the exit strategy could be applied. We're still in the middle of the crisis, Juncker said. According to him, downturn will be all the greater if the determined collective measures of governments are not strong enough.
EU Economic and Monetary Affairs Commissioner Joaquin Almunia told reporters that the challenge is not about the fiscal stimulus, stimulus measures are being implemented. Almunia said this is not the moment to withdraw the stimulus.
He added, It's about fixing the financial system, it's about regaining confidence, it's about consolidating imbalances.
Last week, the European Central Bank had left its key interest rate unchanged at a record low of 1% for the second straight time. To boost lending, ECB started purchasing EUR 60 billion covered bonds.
ECB aims at inflation rates of below, but close to, 2% over the medium term. Eurozone consumer prices dropped 0.1% annually in June after remaining flat in May. Almunia sees no risk of deflation in eurozone and expects inflation to anchor near the ECB's target in the medium term. Wage trend also indicates deflation is unlikely.
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