By Jan Strupczewski
ST. ANDREWS, Scotland (Reuters) - Euro zone finance ministers will affirm next week a pledge to slash budget deficits from 2011 at the latest after forecasts showed economic recovery would continue over the next two years, sources said.
The European Commission, the European Union's executive arm, said on Tuesday that the economy of the 27-nation bloc, as well as of the 16 countries using the euro, would expand in 2010 and growth would accelerate in 2011.
Such a forecast of self-sustaining and strengthening growth was the condition set by EU finance ministers in October and backed by EU leaders last week, for starting budget deficit cuts of more than 0.5 percent annually in all EU states.
"I expect the ministers will interpret the forecasts as meeting the criteria of the previous Ecofin conclusions," said one euro zone source involved in the preparation of the meeting.
Firming up the pledge would appear to put the Europeans in the vanguard -- at least in terms of rhetoric -- of moves to rein in the huge stimulus given to the world economy since the financial crisis erupted last year.
Britain and the United States, in contrast, have focused on the need to stay the course.
British finance minister Alistair Darling, speaking ahead of a meeting with G20 counterparts here, stressed the need for continued stimulus rather than withdrawal.
Euro zone finance ministers, called the Eurogroup, meet on Monday to discuss the Commission's forecasts together with European Central Bank President Jean-Claude Trichet.
The Commission said the euro zone and the 27-nation EU would grow 0.7 percent next year and 1.5 and 1.6 percent respectively in 2011.
"I think there will be a more affirmative message from the ministers that the current forecasts show we should start the exit in 2011," a second euro zone source involved in the preparation of the meeting said.
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.
