EU warns Spain and Italy over their budget plans

ECB headquarters It is the first time the Commission has seen budgets before they are submitted to national parliaments

Related Stories

The European Commission, the European Union's executive arm, has warned Spain and Italy that their draft budgets for 2014 may not comply with new debt and deficit rules.

It also said French and Dutch plans only just passed muster.

Non-complying countries may have to revise their tax and spending plans before re-submitting them to national parliaments.

It is the first time the Commission has done this.

Flexibility

Under EU rules, eurozone member states are obliged to cut deficits until they achieve a balanced budget. They also have to reduce public debt levels.

The Commission gives countries some flexibility if their deficit is below the EU ceiling of 3% of gross domestic product (GDP) and their debt levels are falling.

But when Italy, the eurozone's third largest economy, asked for such leniency over its 2014 budget plans, the Commission refused because its public debt was still rising.

France, whose economy shrank in the third quarter, has taken steps to cut its deficit to below the 3% threshold, but its structural reform plans were only making "limited progress", the Commission said.

Analysis

The new worry for the eurozone is deflation, or falling prices. It's a potentially dangerous economic problem, if it's prolonged, as it can lead to consumers delaying spending and can aggravate debt problems.

New figures show that prices fell month-on-month in October for the eurozone as a whole and in 11 individual countries. Compared with a year earlier, prices were down in Greece, Cyprus and Ireland.

Over the previous 12 months, prices did rise in most countries, but the rate of increase has slowed sharply across the eurozone.

The European Central Bank has already taken steps to reduce the risk of deflation by cutting interest rates to a record low.

The country had "no margin" for error in reducing its public deficit, the executive warned.

Budgetary surveillance

Spain's draft 2014 spending plans were "at risk of non-compliance", said the Commission, as the country does not envisage returning to EU financial norms until 2016 at the earliest.

Other countries at risk of breaking EU finance rules included Finland, Luxembourg and Malta.

The countries coming under the Commission's "budgetary surveillance" are: Austria, Belgium, Croatia, Estonia, Finland, France, Germany, Italy, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Slovakia, Slovenia, and Spain.

Those heavily indebted countries that received EU bail-outs at the height of the financial crisis - Ireland, Cyprus, Portugal and Greece - were not included in the review.

Fragile recovery

On Thursday, official figures showed that the eurozone economy grew by just 0.1% in the July-to-September period, down from 0.3% growth in the previous quarter.

The European Central Bank (ECB) last week cut its benchmark interest rate to 0.25% in an attempt to give some impetus to the fragile recovery.

Meanwhile, the annual rate of inflation across the eurozone fell to 0.7% in October, the lowest level for four years in the 17-country currency area, the EU's statistics agency Eurostat said, confirming an earlier estimate.

This compared to a rate of 1.1% in September. The ECB's target rate is just under 2%.

The October figures revealed a sharp divergence between countries, with Germany's 1.2% contrasting with Spain's 0%.

More on This Story

Related Stories

More Business stories

RSS

Business Live

  1.  
    12:47: Market update

    The FTSE 100 in London has been led 0.5% lower, to 6,777.39, although it's still set for the biggest monthly gain in nearly a year. The Dax in Frankfurt fell 0.3% and the Cac in France dropped 0.3%.

     
  2.  
    12:30: Russia rate cut Tom Espiner Business reporter

    Liza Ermolenko, an emerging markets economist at Capital Economics, told the BBC that one of the main reasons for the rate cut was the Russian government's concerns about growth. However, given the problems in the economy, she said: "It's unlikely that this move will have a significant impact this year. Russia will still experience a very deep recession... Modest cuts are unlikely to change the bigger picture."

     
  3.  
    Crazy prices Via Email Laith Khalaf senior analyst, Hargreaves Lansdown

    The 10-year UK government bond (gilt) yield has fallen to a historic low of 1.4%. "'You don't have to be mad to buy gilts, but it helps. Rational investors wouldn't touch gilts at this level, but reason is pretty much out the window when central banks are sporadically firing bazookas at government bond markets... Falling inflation, lower growth expectations, and of course the ECB bond-buying programme are the most likely culprits for the fall in bond yields."

     
  4.  
    12:00: Tax returns

    Time to get your skates on if you haven't yet done your self-assessment tax return. The deadline for online returns is the stroke of midnight tomorrow. You can probably think of better ways of spending your Saturday - if you have £100 to burn on an HMRC penalty. However, if you're really stuck, there are exceptions.

     
  5.  
    11:45: Nut rage
    nut rage

    Nut rage is back in the news. A court in South Korea is deciding if a former senior executive at Korean Air should be punished under laws designed to deter hijackings. Cho Hyun-ah, the daughter of the chairman of Korean Air, ordered one of its airliners back to the departure gate to eject a cabin attendant who served her nuts in a bag, not in a bowl. She could face ten years in prison if convicted of diverting a flight, and is also accused of assaulting two cabin crew.

     
  6.  
    11:30: Begrudgery World Service

    "Nigerians always talk about what other countries have done." Nigerian government minister Osita Chidoka, responding to Business Correspondent Russell Padmore who said Ireland is often seen a nation of begrudgers, so could Nigeria be the same? Listen to Business Update: http://bit.ly/1yD7IO1

     
  7.  
    11:15: Chip 'n' pain Rory Cellan-Jones Technology correspondent
    Rory gets his chip

    One not to miss today: intrepid technology correspondent Rory Cellan-Jones gets himself chipped so he can do some photocopying. "First, he massaged the skin between my thumb and index finger and rubbed in some disinfectant. Then he told me to take a deep breath while he inserted the chip. There was a moment of pain - not much worse than any injection - and then he stuck a plaster over my hand." We may stick with our plastic ID cards.

     
  8.  
    11:00: Russia rate cut
    RUBGBP

    There's been quite a sharp fall in the rouble against the dollar and the pound following Russia's interest rate cut. A dollar is buying around 70.84 roubles, a 2.4% fall for the Russian currency. One pound will now get you around 106.6 roubles, which is about a 3.1% fall for the rouble.

     
  9.  
    Russia rate cut Via Twitter Andrew Walker BBC World Service Economics correspondent

    tweets: Russian central bank cuts interest rate - 15% from 17% due to "stabilisation of inflation and depreciation expectations"

     
  10.  
    10:41: German beer
    Oktoberfest

    Among general eurozone gloom, a bright spot for German breweries, who saw their first increase in sales volume in 2014 after seven years of declines. The Federal Statistical Office said overall sales of German beer in 2014 were 9.56 billion litres (about 16.8 billion UK pints), an increase of 1% over 2013.

     
  11.  
    Fridgeonomics Via Blog Linda Yueh Chief business correspondent

    After a five-year effort, Unilever tells me that it has achieved zero waste in all of its 240 factories in 67 countries worldwide. It says that it generates efficiency savings of €200m a year by eliminating disposal costs. Read more of Linda's blog on the website.

     
  12.  
    10:14: Housing minister Radio 5 live

    Housing Minister Brandon Lewis was on 5 live talking about house building. "I'm not a fan of targets," he says. Less regulation for small building projects is helping building, he adds. If we are short of housing, why the rise of detached houses? "We've had a period of [building] lots of apartments of flats... we need homes as well."

     
  13.  
    10:00: Rental prices
    ONS

    The graph above, courtesy of the ONS, shows the trend of percentage increases in rental prices. After rises nearing 3% in 2012, the dip to 1.5% may well have ended.

     
  14.  
    09:43: Rental prices
    rents

    Private rental prices paid by tenants in Great Britain rose by 1.7% in 2014, according to the Office for National Statistics. A 2% rise in Scotland led the charge, while English rents grew 1.8%, and 0.2% increases were logged in Wales. As can be seen, London rent rises have outgunned the rest of the country.

     
  15.  
    09:32: Bank of England lending data

    Mortgage approvals rose in December for the first time since June, the Bank of England said. This could mean that a steady reduction in home loans could be ending. There were 60,275 mortgage approvals last month, up from 58,956 in November.

     
  16.  
    Via Twitter Richard Westcott BBC transport correspondent

    tweets: BBC News - Crossrail makes tunnel breakthrough under Liverpool Street Station

     
  17.  
    09:12: Plane order
    ana

    All Nippon Airways has placed an order with a list price of $2.2bn (£1.46bn) for 15 planes from Boeing and Airbus. The Japanese flag carrier is looking to expand routes at Tokyo's central Haneda airport. The airline said it would acquire eight planes from US-based Boeing and seven from fellow duopolist Airbus.

     
  18.  
    08:54: Eurozone crisis
    Alexis Tsipras

    Watch out for Greek fire. Or, continuing the Greek theme, maybe we'll see the golden mean. The prime minister who heads the nation's new anti-austerity government, Alexis Tsipras, has it in his diary to meet Jeroen Dijsselbloem, the current head of the eurozone group of finance ministers today to discuss the conditions of Greece's massive bailout.

     
  19.  
    BT results 08:37: Via Twitter Rory Cellan-Jones Technology correspondent

    tweets: BT says ultrafast coming within a decade - but will it look that fast in 2025?

     
  20.  
    08:29: Honda
    honda

    Honda cut its annual operating profit forecast by 6.5%. It has set aside more cash to cover its recall of cars to replace potentially faulty air bags. It now expects an operating profit of 720 billion yen (£4.1bn) for the year to March 31. It previously forecast 770 billion yen.

     
  21.  
    08:16: Paper review
    papers

    The Guardian splashes on a report from the Institute for Fiscal Studies which claims young workers have been hit hardest by a squeeze in standards of living. The FT digests Shell and US rival ConocoPhillips's investment cancellations. The Wall St Journal says bets against currency pegs, like Denmark's krone with the euro, are on the rise following Switzerland abandoning theirs. The Telegraph reports on a likely windfall for gas companies as wholesale costs drop.

     
  22.  
    Google results Via Twitter Stephen Shankland Senior writer at CNET News

    tweets: Google's capital expenditures jumped $1.13 billion sequentially to $3.55 billion in 4Q2014. Data centers ain't cheap.

     
  23.  
    07:50: Market update

    Japan's Nikkei index added about 0.4%, clawing back some of the 1.1% lost yesterday, while the Hong Kong Hang Seng index dropped 0.1%, to 24,570.01. Japanese factory output rose 1% from the previous month, below forecasts, while household spending fell more than expected, down 3.4% on a year ago.

     
  24.  
    07:33: PPI investigation

    The Financial Conduct Authority, the City watchdog, is planning to "gather evidence on current trends in complaints on payment protection insurance," it says. It could then decide to do an advertising campaign, a time limit on complaints or keep things as they are.

     
  25.  
    07:25: BT results

    BT have updated everyone on their pension fund situation and how they will deal with a £7bn deficit. BT will pay £1.5bn into the fund by the end of April 2015. This will be followed by £250m in each of the years to March 2016 and March 2017. Low interest rates have hit the fund.

     
  26.  
    07:16: Qatar Airways
    Qatar Airways plane

    Qatar Airways has acquired stake of just less than 10% in BA and Iberia-owner IAG. There's a cap on non-EU ownership of European airlines, but Qatar Airways might up its stake in future, it says.

     
  27.  
    07:05: BT results

    BT says third-quarter earnings before tax and interests costs rose 2% to £1.57bn. Gavin Patterson, chief executive says: "All the major communications providers are responding to the strong market demand for fibre broadband, helping to drive take-up in what is already a very competitive market."

     
  28.  
    06:57: US growth data BBC Radio 4

    US growth figures will be reported later on. What's the likely result, Today asks Ewen Cameron Watt of Blackrock? "The rate of growth is slowing a little bit but not enough to raise serious concerns," he says. Expect a "stable but robust rate of growth."

     
  29.  
    06:45: Greece Radio 5 live
    Greece

    Guntram Wolff is the director of European think tank Bruegel, and he's on 5 live, talking about Greece. "It was a mistake that Greece joined the euro, but it would now be a mistake for it to leave," he says. "We will have to come to a deal that will have a lower burden on Greece. I essentially think you will keep the nominal amount [owed to bond investors] but you will increase the maturity.. from 30 to 40 or 50 years."

     
  30.  
    06:30: Amazon results Radio 5 live

    More from Ewen Cameron Watt of investment manager Blackrock on 5 live. He is giving his views on US results overnight. "Amazon and Google both essentially reported that underlying demand over Christmas was pretty decent," he says. After tax, margins at Amazon are below 1%, he says.

     
  31.  
    06:20: Trademark news Radio 5 live
    swift

    The phrases "this sick beat" and "nice to meet you, where you been" have been trademarked by singer Taylor Swift, 5 live reports. Laura Harper of law firm Shoosmiths says she is trying to stop other people making money by putting the phrases on a t-shirt or other merchandise. She will have to prove the phrases are "synonymous" with her, she says.

     
  32.  
    06:09: Shell results Radio 5 live
    shell

    Ewen Cameron Watt of Blackrock is the markets guest on 5 live, talking about yesterday's results from Shell. "These are very historic results because they reflect an average price of $75" per barrel of oil, he says. Bearing in mind oil is below $50 today, "the pain is yet to come," he adds. The firm has cut $15bn of investments. The longer the price remains at this level, the more likely more investment cuts will come, he says.

     
  33.  
    06:01: House building Radio 5 live

    Figures from the National House Building Council show there was a 9% rise in homes built last year to 145,174, but the rise missed the government's 200,000 home target. Peter Vella of Countryside Properties is on 5 live. NHBC's figures don't take into account all homes started or built, so the industry could be closer to the target than thought.

     
  34.  
    06:00: Howard Mustoe Business reporter

    Good morning all. Overnight, online retail giant Amazon has reported weaker profits for the busy Christmas period. Stay tuned for the best business and economics news and get in touch via email bizlivepage@bbc.co.uk or on twitter @BBCBusiness

     

Features

From BBC Capital

Programmes

  • A car being driven by Cruise Automation technologyClick Watch

    The tech which could allow any car with an automatic gearbox to become self-driving

Copyright © 2015 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.