Analysts: A 3-3.5% budget deficit would be more realistic, and acceptable to the EC

The excessive deficit procedure means that, if the Council of the European Union decides that an excessive deficit exists, it may establish a deadline of no more than six months for effective action to be taken by the member state to correct the situation. In its recommendations, the Council is to request the member state to achieve a minimum annual improvement of at least 0.5 percent of GDP as a benchmark.

The government considered for this year a budget deficit of two percent of GDP, budget revenues of 33.5 percent of GDP, and expenditures of 35.5 percent of GDP.

Financial analysts say that the European institutions would accept a budget deficit of 3-3.5 percent, even if the EU’s limit is three percent. First of all, economists said that a 3-3.5 percent target would be more realistic, more credible. Especially since it would be adopted following negotiations with EU’s institutions. Second, the European Commission could allow for the short-term exceeding of the budget deficit target, coupled with a strategy to bring this back below the maximum level.

A deficit exceeding EU’s benchmark is considered exceptional when it the results of an unusual event beyond the control of the member state, which has a major impact on the financial position of the government; and when it results from a sharp economic downturn (if the excess over 3 percent of GDP is the result of negative annual GDP growth or a cumulative fall in production over a prolonged period of very low annual growth), according to EU legislation.