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 The EU executive cut its forecasts, saying the euro zone economy
would expand by 0.8 percent this year, 1.1 percent next year and by
1.7 percent in 2016 -- a level the Commission said six months ago
would be achieved next year. The delay in the upturn was due to drag
on the economy from France and Italy.
"There is no single and simple answer. The economic recovery is
clearly struggling to gather momentum," the EU's economics
commissioner, Pierre Moscovici, told a news conference. Fellow
European Commissioner Jyrki Katainen said Germany, Europe's biggest
economy, should invest more to help the recovery.
German economic growth will be slower than the Commission had hoped,
expanding 1.1 percent in 2015, not the 2 percent level the EU
executive had foreseen in its Spring forecasts.
"Germany can play a significant role in stimulating the EU and euro
area economy," said Katainen, who is the EU's new growth and jobs
commissioner. "For the sake of Germany's own economic strength in
the future, it makes sense to invest."
But he also said Germany alone would not be enough and that all EU
countries needed to reform to boost growth.
Germany has become increasingly isolated for its insistence on
balancing its budget, as the weakness of the 18-country euro zone,
which generates a fifth of world economic output, holds back a
broader global revival led by the United States.
German Chancellor Angela Merkel, speaking in Berlin to Germany's
employers association, reiterated her concerns about getting deeper
into debt, in what is becoming a repetitive debate on spending that
divides the euro zone.
"Investment is needed but not with new borrowing," she said.
Germany is wary of the excessive spending that caused the euro
zone's 2009-2012 banking and debt crisis, when the bloc lived far
beyond its means and lost the confidence of markets.
The Commission forecasts Germany will post a budget surplus this
year, a balanced budget in 2015 and another surplus in 2016, showing
little appetite for more government spending.
FRENCH PROMISE
Indebted countries like Italy and France have little public money
for investing, something that was highlighted by the Commission's
Autumn projections for France's budget deficit.
Rather than falling, like virtually everywhere else in the euro
zone, the French deficit is to grow steadily to 4.7 percent of gross
domestic product in 2016 from 4.1 percent in 2013, assuming the
country takes no further steps.
France has promised to bring the deficit down to the EU's 3 percent
of GDP limit in 2017, but that is the year of a presidential
election, making dramatic spending cuts unlikely.
Reacting to the Commission's overall forecasts, French Finance
Minister Michel Sapin said in a statement issued to Reuters that the
crucial question was "how to rediscover, as quickly as possible,
more growth and jobs".
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Euro zone leaders are putting their faith in a proposed 300 billion
euro fund to invest in projects to revive the economy.
The European Commission's new president, Jean-Claude Juncker, has
promised to unveil the plan in December, but economists warn the
programme will not be enough.
"Investment is still considerably lower than the level it was at
before the crisis," said Moscovici. "This is not specific to the
most vulnerable countries ... An acceleration of investment is
essential."
DIRE INDICATORS
While the hangover from its banking and debt crises is largely to
blame for the euro zone's fragility, tensions with Russia over
Ukraine and economic sanctions imposed by the EU on Moscow have also
damaged business confidence and exports.
The Commission data appears to avoid the relapse into recession that
European Central Bank President Mario Draghi warned EU leaders of at
a summit in Brussels last month, but despite a slowly improving
trend, indicators remain dire.
Inflation will be 0.5 percent this year, 0.8 percent in 2015 and 1.5
percent in 2016, well below the target level of 2 percent the ECB
judges as healthy for the economy, while unemployment is seen barely
budging, at 10.8 percent in 2016.
The data is likely to support calls by economists and some investors
for the ECB to embark on the kind of quantitative easing bond-buying
programme that Japan, Britain and the United States have employed to
recover from the crisis.
But Draghi has told the euro zone it cannot just rely on the ECB,
which is banned from directly financing governments, to help, and
that countries must reform to get more young people into work and
help carry the burden of an ageing population.
Draghi said last month he wanted to see governments draw up a reform
programme by the next EU summit in December.
(Additional reporting by Yann Le Guernigou in Paris and Madeline
Chambers and Erik Kirschbaum in Berlin; Editing by Catherine Evans)
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