The biggest European Union nations have based long-term goals to cut their budget deficits on optimistic economic growth assumptions, which could mean they miss the targets, the European Commission said on Wednesday.

Credible fiscal consolidation plans are crucial for EU governments to keep the trust of financial markets and consumers, following huge spending increases to support their economies during the economic downturn.

But long-term plans of top euro zone economies Germany, France, Italy and Spain, as well as euro-outsider Britain, all appeared to assume stronger economic growth than the EU's executive arm expects, casting doubt on the credibility of their plans.

The Commission examined long-term budget plans of Belgium, Bulgaria, Germany, Estonia, Ireland, Spain, France, Italy, the Netherlands, Austria, Slovakia, Sweden, Finland and Britain, which set budget deficit reduction paths until 2013.

"Overall, for the majority of the fourteen programmes, the growth assumptions underlying the budgetary projections are assessed as rather optimistic, implying that budgetary outcomes might be worse than targeted," the Commission said.

"Furthermore, in several cases, the budgetary consolidation strategy is not sufficiently backed up by concrete measures from 2011 onwards," it said in a statement.

GERMANY

Europe's biggest economy, Germany, forecast in January growth of 1.4 percent this year and 2 percent in 2011. But the Commission predicted German gross domestic product would expand only 1.2 percent in 2010 and 1.7 percent next year.

Germany plans to cut its general government deficit to the EU ceiling of 3 percent of GDP in 2013 from 5.5 percent expected this year.

"The consolidation path from 2011 onwards is not backed up by any concrete measures," the report on Germany said. "Moreover, economic recovery proving more sluggish than currently expected could undermine the budgetary objectives. In view of the risks, the average annual fiscal effort may fall short of the adjustment recommended."

BRITAIN AND FRANCE

The Commission told Britain to do more to cut its huge deficit because the current plan failed to guarantee it would meet an EU deadline of 2014-15 for getting the gap below 3 percent.

Britain's budget deficit is expected to exceed 12 percent of GDP in 2010 and an early copy of the Commission report, obtained by Reuters, has already embarrassed Prime Minister Gordon Brown a few weeks before parliamentary elections.

Britain defended its budget plans in response to the leaked draft, saying they took into account a need to support the economy through the downturn.

France, too, should be ready to take new steps to get its finances back on track as its deficit and debt-cutting plans were based on optimistic economic forecasts.

France has promised to bring its deficit to 3 percent of GDP by 2013 from a projected 8.2 percent shortfall this year, but the strategy relies on growth of 2.5 percent from 2011 onwards, a scenario the Commission called "rather optimistic".

"The strategy does not leave any safety margin if economic developments turn out worse than projected in the programme, which is considered to rely on markedly favourable macroeconomic assumptions," the report said.

It also said Paris had not specified what spending measures it would take and asked the government to provide more details.

ITALY AND SPAIN

The euro zone's third biggest economy, Italy, wants to bring its deficit to 3 percent by 2012, but may miss that target because its economic assumptions are also over-optimistic and plans lack detail, the Commission said.

Italy posted a budget shortfall of 5.3 percent of GDP in 2009, and aims to cut this to 5.0 percent of GDP this year and beneath the 3 percent ceiling by 2012.

Italy's debt is to peak at 117 percent of GDP in 2010 and fall to below 115 percent in 2012.

"The deficit and debt ratios could be higher than targeted, considering ... the programme's favourable macroeconomic assumptions (and) the lack of specification of measures," said the report.

The Commission urged the government to proceed with plans for "fiscal federalism". Finance Minister Giulio Tremonti has promised to press ahead with a long-awaited scheme during this legislative term to hand more responsibility to Italy's 20 regions to collect tax and administer spending in a bid to curb waste.

The effectiveness of the austerity package of the euro zone's fourth largest economy, Spain, was also uncertain.

The Commission said Spain's forecasts that it would cut its deficit to 3 percent in 2013 from 11.4 percent in 2009 were based on "markedly" optimistic forecasts for economic growth after 2010.

It also criticised the slow of pace of bank restructuring in Spain, which it said posed a downside risk to growth. 

Reuters; Balkans.com