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Last Updated: Monday, 23 May, 2005, 12:30 GMT 13:30 UK
Fresh jitters hit EU budget rules
Lisbon
Portugal has by far the highest deficit in the eurozone
EU rules governing the budgets of eurozone member states - the subject of fierce criticism from some governments - are coming under fresh strain.

Portugal, whose budgets have frequently come in for criticism from Brussels, admitted that its deficit could hit 6.8% of gross domestic product in 2005.

This is more than twice the 3% eurozone ceiling, and would represent the biggest breach so far in the rules.

And Brussels said Italy had miscounted its budget figures in 2003 and 2004.

The misleading inclusion of certain revenues brought Italy just within EU guidelines in those years; in fact, according to the Commission's statistical office, it should have been just outside.

Portuguese problem

Portugal, although smaller, is seen as more problematic, because it is the most persistent offender against budget rules.

EU finance chiefs had hoped to defuse controversy over these rules - known as the Stability and Growth Pact - when they agreed in principle to loosen its strictures in March.

That deal was chiefly to spare the blushes of Germany, by far the biggest eurozone economy, which was flirting with the 3% limit.

But the Portuguese figure, unveiled in an official finance ministry forecast, is far higher than any delinquent deficit yet encountered.

Call for reform

The Portuguese and Italian cases will give further ammunition to those calling for a more thorough relaxation of the Stability Pact.

The rules were drawn up to bolster confidence in the European single currency, which investors worried could be undermined by lavish state spending.

Since then, many governments argue that they need to ratchet up expenditure to cope with slower growth and high unemployment, and that the limits set as far back as 1997 are no longer relevant.

Among eurozone states, Greece, France, Portugal and Germany have all breached the 3% ceiling. And the Commission has warned that six of the new EU members - not yet users of the euro - have dangerously high deficits.


SEE ALSO:
EU ministers finalise euro deal
21 Mar 05 |  Business
EU ministers mull stability pact
20 Mar 05 |  Business
EU spending pact row rumbles on
08 Mar 05 |  Business
Deficit reform needed - Schroeder
17 Jan 05 |  Business
EC calls truce in deficit battle
14 Dec 04 |  Business
Germany unveils debt cut measures
04 Nov 04 |  Business
Move to relax euro budget rules
03 Sep 04 |  Business


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