Eurozone finance ministers try to calm jittery markets by laying out budget cuts

Eurozone nations lay out budget cuts

LUXEMBOURG — The 16 nations that use the euro will lay out plans to cut public spending Monday as they try to convince jittery markets that no more countries will need bailouts and that the debt crisis can be contained.

Despite a massive rescue plan and pledges to cut deficits, confidence in the currency and European countries’ ability to handle heavy debt loads remains fragile — the euro has touched a series of four-year lows in recent days and stock markets have fallen.

The latest hit came from Hungary, which is not part of the common currency but where some government officials warned the country is close to default — two years after it received a bailout from the EU and the International Monetary Fund.

Hungary’s government has tried to downplay those comments, but the impact — pushing the euro below $1.19 on Friday for the first time since March 2006 — highlights how closely market fears stalk the region.

Dutch Finance Minister Jan-Kees de Jager shrugged off the new drop, telling reporters that “the present exchange rate of the euro is at its historic average” and that eurozone average debt and deficit amounts are still below countries like the United States, Japan and Britain.

European nations pushed for an immediate start on budget cuts at a weekend Group of 20 meeting of finance ministers from leading rich and emerging countries. The U.S., by contrast, called for governments to take care withdrawing stimulus spending that supports growth.

EU Economy Commissioner Olli Rehn said Europe’s governments need to tackle debt and deficit as a priority in an opinion piece to be published in French daily Le Monde on Tuesday.

Europe is “not out of danger,” he warned, and budget cuts should be in place by 2011 “when the economic recovery should be picking up.”

Rehn rated Hungary’s latest crisis as “shadow boxing,” telling reporters in Luxembourg that “it’s not a real crisis.”

Hungary’s economy minister Gyorgy Matolcsy said the country is still aiming to bring its budget deficit — the gap between government spending and revenue — down to 3.8 percent this year, downplaying comments by officials that it could go as high as 7.5 percent.

However, trade unions warn that budget cuts could be going too far and could choke a fragile recovery that so far relies more on exports than domestic demand in European countries where people are still slow to spend and companies are reluctant to hire new workers.

Unemployment in the eurozone reached a ten-year high of 10.1 percent in April — adding extra welfare costs to governments struggling with higher outgoings, lower tax revenue and debt that has soared since they paid out hundreds of billions to shore up the region’s banking system.

There is intense pressure on all countries to make cuts. Even Germany, Europe’s largest economy with one of the region’s lowest deficits, is laying out plans to cut social welfare benefits, slash public sector jobs and raise taxes.

Spain and Portugal were ordered to make bigger cuts last month and Greece has agreed to a harsh austerity program in return for a euro110 billion ($132 billion) EU-led rescue package. Italy also recently promised cutbacks.

Britain is likewise warning that it will need to squeeze public spending. British Prime Minister David Cameron said “the overall scale of the problem is even worse than we thought.” He gave no details of possible cuts, but suggested that welfare programs and the civil service could be targeted.

Monday’s talks between eurozone finance ministers will be followed by a meeting of most European Union finance ministers and EU officials who will thrash out plans for long-term ways to avoid a new economic crisis, including a proposal for more EU oversight of national budgets.

Associated Press writers Emma Vandore in Luxembourg, Greg Keller in Paris, Pablo Gorondi in Budapest and Bob Barr in London contributed to this story.