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Guest Post: Deficit Crisis: Cyprus, Denmark And Finland Join The Watchlist

Courtesy of Tyler Durden

Submitted by Frode Haukenes of The Econotwist Blog

Cyprus, Denmark and Finland have joined the ranks of EU member countries with government deficits deemed high enough to pose a threat to the wider European economy. The commission is now recommending they be placed on its list of countries warranting further scrutiny of public finances. Until recently, these countries seemed to be doing well.

“The sudden turnabout shows the severity of the economic crisis, which has wreaked havoc with public spending.”

Olli Rehn



Including the three newcomers, EU’s watchlist now consist of all but one of the 27 member countries. Only Luxembourg is not running a deficit that is well over 3% of gross domestic product – the official EU limit, the EU commission write on its website.

Luxembourg finished 2009 with a shortfall of around 2%.

Cyprus recorded a shortfall of 6.1% of GDP last year.

Deficits are expected to reach 5.4% this year in Denmark and 4.1% in Finland.

Setting Deadlines

As it does with all countries under scrutiny, the commission has proposed deadlines for Cyprus, Denmark and Finland to correct their deficits.

Finland would have until 2011, while Cyprus and Denmark would have until 2012 and 2013 respectively.

So far, 12 member countries have taken what the commission considers to be effective action to close their gaps, cutting government spending and introducing revenue-boosting measures as promised.

The Fab Four

Among them are Ireland, Italy, Portugal and Spain – 4 countries at the center of concern about high national debt looming over the euro zone, the EU commission points out.

Germany, meanwhile, has moved to boost consumer spending – in response to worries that the country’s fat trade surplus is hurting other EU economies.

But the country has also outlined deficit-reduction measures for 2011 and beyond.

The other countries reviewed in the latest commission report are Austria, Belgium, the Czech Republic, France, the Netherlands, Slovakia and Slovenia.

A Sudden Turnaround

Until recently, both Cyprus, Denmark and Finland seemed to be doing well, the EU commission writes.

EU monetary commissioner Olli Rehn says the sudden turnabout “shows the severity of the economic crisis, which has wreaked havoc with public spending.”

The 3% limit on deficits – part of the EU’s stability and growth pact – is meant to prevent imbalances that could undermine confidence in the euro zone, as happened last month during the Greek debt crisis.

More on EU’s excessive deficit procedure


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