BRUSSELS (Reuters) - France, Italy, Spain and Portugal are in breach of or will break EU deficit reduction rules unless they change policies, European Commission economic forecasts showed on Thursday.
The Commission, which is the guardian of EU law, issues forecasts for the economies of the 28-nation EU three times a year, projecting key economic indicators such as economic growth and inflation as well as budget deficits and debt.
EU budget rules oblige governments to keep the headline budget gap below 3 percent of GDP and cut the structural gap, which exclude the effects of the business cycle and one-offs, every year until they reach balance.
If they fail to do so, they face a disciplinary procedure in which EU finance ministers set deficit reduction targets and deadlines for them.
The Commission latest forecasts showed that the euro zone's second biggest economy France, which has a deadline to cut its headline budget gap to 2.8 percent in 2017 will instead have a deficit of 3.2 percent next year, unless it takes action.
In structural terms, France was asked by EU finance ministers to reduce the deficit by 0.5 percent of GDP in 2015, 0.8 percent in 2016 and 0.9 percent in 2017. But the Commission forecasts showed the cut last year was only 0.2 percent.
The reduction in the structural deficit this year in France will be only 0.4 percent -- half of what is required -- and the shortfall will actually rise 0.2 percent next year, according to the Commission's forecasts.
The third-biggest economy Italy, while safely below 3 percent with its headline deficit, will see an increase in its structural gap to 1.7 percent of GDP this year from 1.0 percent in 2015, rather than a 0.5 percent fall as required by EU rules.
The Italian structural deficit is then to ease only to 1.4 percent in 2017, again below the minimum required annual reduction of 0.5 percent.
Spain, the euro zone's fourth largest economy and still without a government after inconclusive elections in December, was asked to cut its headline deficit to 4.2 percent in 2015. But the Commission's forecasts showed it missed that target, with a 4.8 percent gap.
Madrid was to take the deficit down to 2.8 percent this year, but unless policies change it will end up with a 3.6 percent shortfall, the Commission projected.
In structural terms, Spain's deficit has risen since 2014 rather than falling, the Commission said.
Portugal is also in trouble, because it was supposed to cuts its headline deficit to 2.5 percent last year, but instead ended up with a 4.2 percent gap.
Without policy changes, it will not bring its deficit below 3 percent this year either and its structural deficit is also rising sharply, rather than falling as it should.