BRUSSELS (Reuters) - The European Union launched disciplinary steps against newest member Croatia on Tuesday for running an excessively large budget deficit, giving Zagreb until 2016 to bring the shortfall within the bloc's limits.
Croatia, which became the 28th EU state last July, has had a budget deficit of more than 5 percent of output since 2009. EU rules set the ceiling for a government shortfall at 3 percent.
The Balkan country has been in recession since 2009, with unemployment high and rising. Standard & Poor's downgraded its credit rating further below investment grade last week.
EU finance ministers endorsed a European Commission recommendation that Croatia should cut its deficit to 2.7 percent of economic output in 2016, from 4.6 percent expected this year.
Croatia's Finance Minister Slavko Linic, who attended the meeting in Brussels, said Zagreb would draft measures to comply with the EU's rules as early as this week.
"We want to reduce the budget gap this year by 7.5 billion kuna ($1.34 billion) and the government will this week propose the measures, which will be reflected on both the revenue and spending side of the budget," Linic said.
The fiscal consolidation measures are also aimed at bringing down Croatia's debt to nearer the EU's ceiling of 60 percent of gross domestic product. Croatia is set to breach the limit this year, with debt forecast to rise to 64.7 percent of GDP from 59.6 percent in 2013, according to the Commission.
"The adjustment path recommended by the Commission aims to strike a balance between the need to take into account the weak economic conditions and the urgency of the fiscal adjustment to instil credibility in the consolidation effort," the EU's executive said on December 10.
The Commission wants Zagreb to present plans to cut the deficit by the end of April, and if not it could face fines.
Zagreb had originally planned a budget gap of 5.5 percent of GDP for this year, but must now reduce it to at least 4.6 percent.
"We want to complete the budget revision in February so that we're entirely ready for the European Commission's assessment of our budget, scheduled for April," Linic said. ($1 = 5.5915 Croatian kunas)
(Reporting by Martin Santa, additional reporting by Igor Ilic in Zagreb; Editing by Zoran Radosavljevic and Catherine Evans)
