EU finmins to firm up pledge for 2011 fiscal exit

The Commission said that unless policies changed, the euro zone budget deficit would reach 6.9 percent next year and 6.5 percent in 2011 from 6.4 percent seen this year.

This is more than twice the EU limit on budget deficits of 3 percent of GDP. Of the 27-nation bloc only Bulgaria will not breach that limit next year, and Sweden will move below the threshold in 2011, the forecasts showed.

Euro zone debt is likely to soar to 84.0 percent of GDP in 2010 from 78.2 percent this year and to 88.2 percent in 2011.

SOFT PATCH

EU governments, keen to reassure investors and consumers that they would not let debt spiral out of control, want to make clear in advance that they would return to more sustainable fiscal policies once recovery is assured.

In its forecasts, the EU's executive arm made clear the worst economic downturn since World War Two was now over, even though the economy could go through another "soft patch" in the first half of 2010. The 2011 deadline should therefore hold.

"With this forecast I will recommend to Ecofin (EU finance) ministers next week to declare or confirm that 2011 is the year when the EU and euro area start in aggregate terms this fiscal exit strategy," Economic and Monetary Affairs Commissioner Joaquin Almunia said on Tuesday.

Non-euro zone finance ministers will join the discussion on Tuesday.

"The finance ministers will therefore have a first discussion on the phase-out principles and agree on the process going forward," the Swedish EU presidency said in a statement.