WRAPUP 1-Euro ministers grapple with post-crisis deficits

By Yves Clarisse and Jan Strupczewski BRUSSELS, Nov 9 (Reuters) - Euro zone finance ministers on Monday faced up to the sharp budget cuts they may have to start from the end of next year to repair the damage the banking crisis and economic downturn have done to public finances. Ministers from the 16 countries that use the euro currency were expected at a meeting in Brussels to broach 2011 as the start date for painful budget consolidation once recovery from recession becomes more lasting. A document obtained by Reuters showed the European Commission, the European Union executive, wants Germany, France and Spain to cut their public deficits by 0.5, 1.25 and 1.75 percentage points of GDP a year up to 2013 -- starting in 2011 for Germany and France, and a year earlier for harder-hit Spain. "I guess we all think that the best year to actually start will be 2011 for most countries," Dutch Finance Minister Wouter Bos said. The Commission, which checks adherence to the budget rules of the EU's Stability and Growth Pact, is due to publish its recommendations on Wednesday.

The document obtained by Reuters showed the scale of the task it envisaged. Germany should cut its deficit by the EU benchmark of 0.5 percent of GDP annually between 2011 and 2013 but should cut faster if economic or budgetary conditions turn out better than expected, the Commission document showed. The Commission expects the continent's biggest economy to have a budget gap of 5 percent in 2010 and 4.6 percent in 2011. France, which according to the Commission will have a budget deficit of 8.2 percent next year and 7.7 percent in 2011, will have to cut it more quickly to make the deadline. Spain, with a shortfall of 10.1 percent forecast for next year and 9.3 percent in 2011, will have to make an even deeper effort -- average annual cuts in structural terms of 1.75 percent of GDP between 2010 and 2013. "We must set our direction according to the Stability Pact. The aim of getting deficits under three percent and debts below 60 percent (of GDP) has to be kept in view over the short- and medium-term," Austrian finance minister Josef Proell said. "I recognise that for some countries which have run very big deficits in fighting the crisis, that is not going to be an easy goal to reach," he told reporters. The Commission said Italy should have until 2012 to get below the ceiling of 3 percent of GDP and Britain should have until 2014/15. TREADING CAREFULLY Data this week is expected to confirm the euro zone as a whole registered renewed growth in gross domestic product in the third quarter of 2009, marking the end of a year-long recession. Politicians and central bankers say they have to start to plan the removal of the monetary and fiscal stimulus measures deployed to prevent a longer slump but are playing it carefully. European Central Bank chief Jean-Claude Trichet reiterated that monetary authorities would seek to begin a gradual phase-out of exceptional market support steps in timely manner. "We see elements that are encouraging, the confirmation of the fact that we avoided the extreme depression, but we have elements that call for common vigilance," Trichet said after a meeting of the Bank for International Settlements in Basel. He then left for Brussels where the ministers were expected to focus primarily on the other side of the same story -- the fiscal stimulus that has caused a surge in deficits and debts. The European meeting followed a weekend gathering where ministers of the G20, comprising the world's largest developed and developing economies, said it was too early to deprive the economy of the ultra-low interest rates and trillions of taxpayer dollars thrown at fighting the downturn. Highlighting the sensitivity of the situation, European employers' organisation BusinessEurope, which speaks for some 20 million firms, sounded the alarm over the strength of the euro, which topped $1.50 earlier on Monday. "I am deeply concerned about recent exchange rate developments," BusinessEurope President Jurgen Thumann told Trichet and others before the minsters' meeting. "The euro has reached a pain threshold for industry in the euro zone," he said in a statement, referring to the handicap a strong euro creates for firms competing in world markets. He said interest rates would have to be maintained at a low level for a considerable period of time. The ECB left interest rates unchanged at a record low of 1 percent last Thursday and economists expect it may only start raising the costs of borrowing in the last quarter of 2010 as inflationary pressures are very low. (Writing by Brian Love; editing by Patrick Graham) Keywords: EUROPE FINANCE/EUROGROUP ([e-mail]; [phone]; Reuters Messaging [e-mail]@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.