Europe is edging out of recession. By the end of 2011, European governments will have withdrawn the stimulus packages which they employed to stave off the 2008 crisis and all will be back to normal. Deficits will all be under three per cent of gross domestic product, oil prices will remain stable and growth will be felt amongst all the countries in the bloc, particularly those in the eurozone.

Does that sound like a fairy tale? Of course it does. Will there be a happy ending? Not if we don’t stop fooling ourselves with economic growth forecasts – the European Commission believes.

The Commission has warned the largest eurozone economies that their growth forecasts for the next three years are too optimistic. This, says the Commission would negatively impact the ability of the economies to tackle their burgeoning budget deficits in terms of GDP.

The Commission has asked the four largest eurozone economies – Germany, France, Italy and Spain – how they intend to bring their deficits back to under three per cent, the Maastricht benchmark for sustainable growth in normal economic times. Austria, Belgium, Ireland and the Netherlands have also been quizzed.

Most of these economies are predicting growth of about three per cent by 2013, but the commission believes (much as we do) that it is too far fetched a projection. It was also shocking to hear that the meltdown suffered in the past couple of years has undone “the benefits of 20 years of fiscal prudence within the EU”.

If one were to compare these optimistic predictions to the unemployment and public debt accumulated by these countries, it is easy to see why the targets can not be met. Slashing a 9.8 deficit (Spain) to 3 per cent within 2013 in the middle of a recovery from recession and massive unemployment just does not seem to be possible.

Likewise, France – with a deficit of 8.2 per cent and public debt of 83 per cent cannot hope to bring that percentage back to three per cent with its current number of unemployed coupled with very generous state benefits. In cutting deficit, one must realise that growth needs to be higher than 3 per cent – to register positive real term growth while at the same time cutting the deficit figure (as we saw in Malta’s build up to accession) one needs a bare minimum of four per cent GDP growth.

This fear was indirectly echoed in the corridors of Brussels, with politicians and Commissioners remarking that the projections (and restructuring plans) leave no margin for error.

In other words, if these countries do not register the positive performance they are hoping for, they can not have a cat in hell’s chance of reducing that deficit. When the Commission warns that Germany – the shining example of austerity and prudence – risks not meeting its deficit targets, then we should all sit up and take notice. Positive talk breeds positive business, but we should not get carried away. Malta’s last deficit figure stood at just over 3 per cent. We would do well to remain slightly cautious and keep tight hold of the purse strings. We might have slipped into a quagmire with the softly-softly approach we took – but we certainly did not feel the full force of the European recession and if we stay on this tack – we will not suffer shocks to the system as we steer out of it.