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Brussels expected to up pressure for economic reform

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(Globalpost/GlobalPost)

The European Commission is expected on Wednesday to increase the pressure on several countries, particularly France, to speed up structural reforms seen as the only reliable way to boost growth and job creation.

With Europe still mired in recession, the Commission will on Wednesday release its latest economic recommendations for member states -- except for those under bailout programmes: Greece, Ireland, Portugal and Cyprus.

During the debt crisis Brussels has gained additional powers to police the economic policies of the member states. If persuasion fails it can impose sanctions, although this weapon has yet to be wielded.

The Commission prefers the carrot to the stick, a European source said, favouring a constant dialogue with member states.

However certain countries, like France and Spain, are expected to face added pressure.

In exchange for an extra two years to bring their budget deficits back within the 3 percent EU ceiling they should commit to undertake reforms that, according to Brussels, have been put off for too long.

The Commission would like in particular to see France further liberalise its labour market and reform its pension system.

French President Francois Hollande pledged to undertake reforms when he visited Brussels earlier in May and met with European commissioners.

"We have implemented competitiveness reforms and we will continue to do so, not because Europe requests us to, but because it is in the interest of France," said Hollande at a joint news conference with Commission chief Jose Manuel Barroso.

The case of France, which has just tipped into recession, is crucial. If the eurozone's number two economy continues to contract it will make it difficult for the region as a whole to rebound.

France will not be alone in the spotlight, however.

Slovenia's troubles have been mounting due to problems with its banks, and since Cyprus was forced to seek help it has warned of

a double-digit contraction in GDP this year.

The British government has been intent on carrying out austerity policies, despite advice from the IMF to moderate the programme.

The Netherlands could get a delay in the deadline to bring its deficit back within EU limits.

The Commission will also update Wednesday its forecasts on deficit reduction efforts by member states.

This could see Italy escape the excessive deficit procedure, if the Commission judges that efforts Italy has pledged to undertake are sufficient to keep the country under the agreed 3.0 percent threshold.

Italy has been forecast to reduce its public deficit to 2.9 percent this year and 2.4 percent in 2014.

However the country with a massive debt of 130 percent of annual output must account for how it plans to finance 10 billion euros ($13 billion) recently announced by the new prime minister, Enrico Letta.

Belgium will come in for criticism for not having reduced its deficit sufficiently, according to the Belgian daily L'Echo, although with France and Spain having been granted delays it appears sanctions are unlikely.

Furthermore, the Commission has been talking about adjusting how it calculates budget deficits, inorder to offer greater leeway.

It has been widely criticised for targeting nominal deficit levels, which countries have had difficulty meeting under the impact of austerity measures they implement and a longer and deeper recession in Europe.

Spokesman Simon O'Connor said Monday that the Commission would reflect on the issue in the coming weeks and present options to European leaders at their June summit.

The leaders are expected to discuss the Commission's recommendations at the summit at the end of June before they are formally approved later by finance ministers of the 27 EU member countries.

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http://www.globalpost.com/dispatch/news/afp/130528/brussels-expected-pressure-economic-reform