Page last updated at 14:15 GMT, Wednesday, 11 June 2008 15:15 UK

EU to act over UK budget deficit

EU flag surrounded by national flags
France and Germany have been similarly warned in the past

The European Commission is to start disciplinary proceedings against the UK for breaching its economic rules.

It says Britain's budget deficit, the gap between its spending and its revenues, is growing too large.

The disciplinary proceedings are in effect a formal warning to curb borrowing, cut spending or both.

The Treasury said it did not agree with the commission's assessment and asserted that the UK's public finances were sound.

The UK cannot be fined as it is not in the eurozone, but the launch of proceedings is unlikely to reflect well on the UK government.

The European Commission watches the economies of all EU countries, whether they use the euro as a currency or not.

'Embarrassing period'

It says it foresees a situation when Britain's deficit is over 3% of its GDP, breaching the rules on economic management set down in Europe's Growth and Stability pact.

The UK is the only EU country to face such a censure this year but warnings have been issued to France and Germany in the past, backed with the threat of fines.

Graham Mather, president of the European Policy Forum and a former Conservative MEP, said: "At the moment it looks as though Gordon Brown is going to face an excruciating embarrassing period in which all these proceedings will be brought to bear on Britain.

"Our colleagues in other countries will be saying: 'Oh dear Gordon, what's gone wrong, why have you broken the rules, how can we help you get things back in line and get your budget deficit back under control'.

"It's not going to be a happy picture."

The Treasury has rejected the rebuke, saying its policies remain "prudent".

"The assessment does not take proper account of the UK's low debt - which remains well below the levels in other major EU nations and the euro area average - the economic cycle, nor the important role of investment in public services and infrastructure," the Treasury said in a statement.

It added: "The IMF said recently that 'the 2008 Budget judgment was appropriate, as was its commitment to fiscal tightening over the next few years'."

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