Sweden urges EU states to tighten belts

Swedish Prime Minister Fredrik Reinfeldt has said the country's EU presidency will push member states to curtail spending and work towards sustaining public finances across the union.

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Reinfeldt's comments risk bringing Sweden into conflict with the bloc's big spenders, which have pumped several billion euros into their economies to offset the effects of the economic crisis.

"The time has come for an exit strategy," Reinfeldt said on Tuesday. "Especially for countries with huge deficits."

He made his comments at a press conference in Stockholm as his government takes over the rotating six-month EU presidency from the Czech Republic on Wednesday.

"If there is a deep imbalance (in public finances) you create uncertainty" among the citizens because you're signalling "expenses cuts or tax hikes to come".

In total, 20 of the 27 EU members expect to run a deficit of more than 3 percent of their GDP this year, breaching the bloc's Growth and Stability Pact -- a key part of its economic union policy.

This plunge into the red can be traced back to the some 600 billion euros of extra spending that EU countries have earmarked for 2009 and 2010 to ward off the effects of the global economic crisis, mainly in the form of stimulus packages or increased unemployment and welfare payments.

But the incoming EU presidency does not think this level of spending can be kept up.

"The key issue for the Swedish presidency is the sustainability of public finances," the country's finance minister, Anders Borg, told reporters.

"In the long term, current deficits are not sustainable," he added.

Borg suggested ways of balancing the books could include cutting spending, raising taxes or even a combination of these measures.

Sweden's tough talk on public finances is likely to draw the ire of some of the EU's big spenders who say that cutting back at this crucial stage will only deepen the recession.

French President Nicolas Sarkozy has just announced massive borrowing plans from the start of 2010 to finance investment projects aimed at boosting economic growth and jobs.

That is despite France already slipping dangerously into the red -- Paris expects to run a public deficit of 7 percent in 2009 and and 7.5 percent in 2010.

The French do not appear to be on the same wavelength as the Germans on this issue as Berlin wants to tackle its deficit as quickly as possible.

Yet German Chancellor Angela Merkel is still expected to campaign at the next general elections in September on the promise of tax cuts.

France has thus far received little backing in its calls for the EU to adopt a more flexible approach to the public deficit question, especially not from the Swedes.

Sarkozy makes a distinction between "good" and "bad" public spending. He refuses to cut back on the former but says he is committed to slashing the latter.

The French president says he will do all this without raising taxes.