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EU sees Germany keeping budget surplus, France above deficit ceiling

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By Reuters
EU sees Germany keeping budget surplus, France above deficit ceiling
FILE PHOTO: The flags of Germany and France are seen in front of the the Chancellery, before the meeting between German Chancellor Angela Merkel and French President Emmanuel Macron in Berlin, Germany May 15, 2017. REUTERS/Pawel Kopczynski/File Photo   -   Copyright  Pawel Kopczynski(Reuters)

By Francesco Guarascio

BRUSSELS (Reuters) – 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 euro zone 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 euro zone 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 a 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.

(Reporting by Francesco Guarascio @fraguarascio)