[an error occurred while processing this directive]
BBC News
watch One-Minute World News
Last Updated: Wednesday, 7 April, 2004, 12:45 GMT 13:45 UK
Brussels warns on budget troubles
European Central Bank
Half the 12 countries that use the euro will break the rules on budget deficits in 2004, the European Union has warned.

Slow growth is to blame for the probability of a widespread breach of the debt ceiling of 3% of annual output, the EU's spring forecast says.

Joining perennial culprits France and Germany are the Netherlands, Greece, Italy and Portugal.

The European Commission said it had rebuked the Netherlands and the UK for breaking the 3% rule in 2003.

Growth, the Commission said, was being damaged by high oil prices, the soaring value of the euro and increased security concerns following March's bomb attacks on Madrid.

"Overall, the balance of risks appears to have shifted toward the downside," the Commission said, dropping its forecast for 2004 eurozone growth from 1.8% to 1.7%.

Repeat offenders

The budget deficit ceiling is the result of the Stability and Growth Pact signed by all 15 EU members states, which came into force at the start of 1999.

Deficits as % of GDP
France: 3.7%
Germany: 3.6%
Netherlands: 3.5%
Portugal: 3.4%
Greece: 3.2%
Italy: 3.2%
All figures as % of GDP
Source: European Commission

It commits all 12 states to keeping deficits in check, on the basis that this will maintain a tight hold on inflation.

But several countries have said the straitjacket means their economies are artificially subdued at a time when they need extra stimulus - particularly when the European Central Bank is reluctant to reduce interest rates.

France, whose deficit hit 4.1% last year, and Germany with its 2003 shortfall of 4%, have both been warned several times.

Germany is now on course to drop below 3% by 2005, Brussels says - but it does not believe France's promise to do the same, predicting the country's budget will be 3.6% in the red.

Portugal's Government downplayed the prediction that it too would break the rules this year, having done so in 2001.

Greece's new conservative government said it would do all it could to keep below the cap.

Meanwhile, the anti-deficit mechanism built into the Pact means that the Netherlands and the UK are getting stern letters demanding an explanation for breaking the rules - even though Brussels predicts the UK, at least, will be back under 3% this year.

Sarkozy pledges 'growth and jobs'
01 Apr 04  |  Business
Do Budget deficits matter?
12 Mar 04  |  Business
Italian borrowing raises concerns
01 Mar 04  |  Business
OECD warns on UK budget deficit
20 Jan 04  |  Business
Cut in eurozone's growth forecast
11 Dec 03  |  Business

The BBC is not responsible for the content of external internet sites


News Front Page | Africa | Americas | Asia-Pacific | Europe | Middle East | South Asia
UK | Business | Entertainment | Science/Nature | Technology | Health
Have Your Say | In Pictures | Week at a Glance | Country Profiles | In Depth | Programmes
Americas Africa Europe Middle East South Asia Asia Pacific