BRUSSELS - Euro zone finance ministers will take their first step towards exiting discretionary fiscal stimuli on Tuesday by accepting deadlines for deficit reductions proposed by the European Commission last month.

But the euro zone's second biggest country France managed to secure a slower annual pace of deficit cuts than recommended by the European Union executive while accepting the overall deficit reduction deadline.

The Commission, the European Union's executive arm, on November 11 set deadlines between 2012 and 2014/15 for 13 EU countries to slash budget gaps below 3 percent of GDP and said it would step up disciplinary budget action against Greece for not making an effort to cut its huge shortfall.

The euro zone ministers, called the Eurogroup, will be joined on Wednesday by EU colleagues from non-euro zone countries to formally accept the deadlines.

The Ecofin Council's decision should be seen as a first step in Member States' fiscal policy exit strategies, that is to say, their strategies for phasing out fiscal policy measures, the Swedish EU presidency said in a statement.

The cutting of the deficits, inflated by the worst economic crisis since World War Two to sometimes more than four times the EU limit, is necessary to prevent a market crisis of confidence in EU government debt policies and a rise in long-term interest rates that would raise the debt servicing costs.

The Commission gave Germany, France, Spain, Austria, the Netherlands, the Czech Republic, Slovakia, Slovenia and Portugal until 2013 to bring their deficits below the 3 percent EU limit.

The euro zone's biggest economy Germany has long said it would meet its 2013 deadline, but France had been reluctant to accept its target, saying 2014 would already be a good effort.

SLOWER PACE OF CUTS
On Monday, French Economy Minister Christine Lagarde said in Berlin after talks with German Finance Minister Wolfgang Schaeuble that Paris would aim for 2013 if economic conditions permit.

She also said the pace of deficit cuts, in structural terms, which excludes cyclical factors, one-offs and temporary measures, would be only 1 percent per year, rather than the 1.25 percent recommended by the Commission on November 11.

In a final version of a recommendation of EU finance ministers to France, obtained by Reuters, the 1.25 percent is replaced by above 1 percent -- a rare instance of changes introduced into Commission recommendations by member states.

Euro zone sources said the change was made after a lengthy discussion in the Economic and Financial Committee of junior finance ministers and central bankers that prepare the ministerial meetings.

The Commission has forecast France's structural deficit in 2009 at 7 percent of GDP, so a 1 percent reduction over four years would still bring Paris to 3.0 percent in 2013.

We came to an agreement to retain the rules of the Stability and Growth Pact (EU budget rules). After a very long debate in the EFC, everyone understands what is at stake, one euro zone source said.

The Commission has asked Germany and Italy to cut their deficits by 0.5 percent -- the EU benchmark. Austria, the Netherlands, Belgium and Slovenia should cut by 0.75 percent a year while Slovakia and the Czech Republic by 1 percent.

Portugal will have to reduce their shortfall by 1.25 percent every year, Spain and Britain by 1.75 percent and Ireland will have to slash the gap by 2 percent annually.

The new deadlines give France, Britain, Ireland and Spain an extra year for the deficit reductions.
This is because they took effective action to cut deficits as requested by EU finance ministers in April, but bad economic conditions made it impossible for them to meet the targets.

EU finance ministers have already agreed to start withdrawing fiscal support to the economy from 2011 at the latest as the recovery takes a firmer hold and noted many countries would have to start consolidating earlier.

The Commission expects the aggregate budget deficit in the euro zone to jump to 6.4 percent this year and 6.9 percent next year from 2.0 percent in 2008 -- more than twice the EU limit of 3 percent of gross domestic product.

This will boost euro zone debt to 78.2 percent of GDP this year, 84 percent in 2010 and 88.2 percent in 2011 in a trend that could undermine the value of the shared euro currency.

(Reporting by Jan Strupczewski, editing by Patrick Graham )

Germany Portugal European union