EU sees Germany keeping budget surplus, France above deficit ceiling

The European Commission forecast on Thursday that Germany would keep a budget surplus at least until 2021, while France's deficit would be above the EU ceiling this year and Italy's debt would keep growing to nearly 140% of output.

In its quarterly economic forecasts, Brussels said the 19-country eurozone would maintain a broadly neutral fiscal stance this year and next, despite repeated calls on Germany and other wealthier states to spend more to counter a protracted economic slowdown. Despite a worsening growth outlook, Germany is set to maintain a large budget surplus this year at 1.2% of its gross domestic product (GDP). The surplus is to narrow to 0.6% of GDP next year, and 0.2% in 2021, the Commission forecast.

The Netherlands, which is also among the eurozone states which could spend more, is set to have a surplus of 1.5% of output this year, 0.5% next and 0.4% in 2021. Italy, which has already the largest debt in absolute terms in the EU, is to increase its debt burden to 136.2% of GDP this year, and it would continue rising next year to 136.8% and 137.4% in 2021, according to the Commission.

The EU executive's forecasts diverge from the Italian government's estimates. Rome sees the debt going down next year to 135.2% of output and expects it to keep falling in 2021. Countries with debt above 60% of GDP are required to gradually reduce it, under EU fiscal rules.

The Commission also forecast Italy's structural deficit, which excludes one-off expenditures and revenues and is key in the Commission's assessment of compliance with EU fiscal rules, to worsen to 2.2% of GDP this year and 2.5% in 2020, contrary to rules dictating it should improve. France, which has a debt close to 100% of output, is also spending more this year and is expected to raise its budget deficit to 3.1% of GDP, the Commission estimates, above the EU's 3.0% ceiling.

Its deficit is forecast to fall to 2.2% next year, according to the Commission's forecasts.

Also Read: UPDATE 1-Italy says 2020 budget not a significant deviation from EU rules