EU members warned over deficits

Germany and France are both set to fall foul of the EU's tight budget rules again next year.

    Eurozone giants Germany and France are the worst culprits

    Top European economic and finance officials said on Tuesday that excessive public deficits could pose problems for six EU economies and warned incoming members not to

    make the same mistakes.

    European Central Bank president Jean-Claude Trichet warned that several of the biggest EU member states risk posting public deficits in excess of EU rules in the years ahead.

    Germany and France have been singled out as the leading culprits. Berlin will have been in breach of the Stability and Growth Pact for four years in a row. Paris is on course to break percentage debt limits much more impressively.

    Under the terms of the 1997 stability pact, drawn up at the behest of Germany itself, eurozone members are not allowed to run up public deficits in excess of 3.0% of gross domestic product (GDP).
      
    But Germany breached that limit in 2002 and 2003, when its deficit ratio soared to 3.5 and then 3.9% respectively.
      
    And the country's six leading economic research institutes predicted in their spring report published on Tuesday that the deficit ratio would remain far in excess of the limit again, both this year and next year.
      
    French overspending

    The French economy only grew by 0.5% last year - the lowest figure for 10 years – while rising health-care costs pushed the public finance deficit far beyond eurozone limits too.

    France's public-sector deficit amounted to 4.1% of gross domestic product in 2003 and does not seem to be on a downward trend.
      
    Institut National de la Statistique et des Etudes (INSEE) also reported that the public debt amounted to 63.7% of output last year, which was also greater than a eurozone limit of 60%.
      
    Their report attributed a sharp increase in the deficit to spending on social policies.
      
    At a presentation on proposed reforms of public spending, new Finance Minister Nicolas Sarkozy said France had to learn to "rein in" its public spending.
      
    "We cannot carry on accumulating deficits and debt," Sarkozy said.

    SOURCE: Agencies


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