The European Commission has warned that half the euro zone's 12 member-states, including the three largest economies, will run budget deficits in 2004 above the 3 per cent limit laid down in the Stability and Growth Pact.
The Economic and Monetary Affairs Commissioner, Mr Pedro Solbes, said Germany and Portugal were on track to sort out their budget problems. But he warned that the French budget position was not improving and that of Italy was getting worse.
"In Italy, the budgetary situation is clearly deteriorating as the government is running out of one-off measures to bridge the gap between revenues and expenditure," he said.
France and Germany are expected to exceed the 3 per cent limit for the third year in succession while Italy's deficit is expected to reach 3.2 per cent this year and 4 per cent in 2005.
Mr Solbes said Italy should be given an official "early warning" with a view to "inducing an immediate change in policy and preventing the occurrence of an excessive deficit".
The Commission's Spring Economic Forecasts predict that the Netherlands will run a deficit of 3.5 per cent of GDP in 2004 and that Greece's deficit will reach 3.2 per cent. Officials from Eurostat, the EU's statistics office, will visit Greece shortly to report on public finances there.
Overall, the Commission is downbeat on the economic outlook, predicting euro-zone growth of just 1.7 per cent this year and an expansion of 2 per cent in the EU overall.
Italy yesterday played down the Commission's criticism and the country's deputy prime minister, Mr Gianfranco Fini, predicted that EU finance ministers would back away from imposing sanctions on Rome.
"The government is at ease also because it is certain that in Ecofin the sanctions won't be agreed, as happened for other countries in the recent past," he said.
The Dutch government, however, promised to introduce spending cuts to bring its budget into line with EU rules. "At its April 16th meeting, the government will take decisions on additional budget cuts to bring the deficit back below three percent," said a spokesman for the finance minister, Mr Gerrit Zalm.
Greece's new conservative government blamed the outgoing Socialists for the budget deficit and promised to work hard to bring it down.
Among the 10 countries due to join the EU on May 1st, only four have deficits below 3 per cent and the Commission predicts that Poland, the largest of the new member-states, will run a budget deficit of 6 per cent this year.
Mr Solbes, who is leaving the Commission to become Spain's prime minister, insisted that the Stability and Growth Pact remained credible despite its widespread breach. He said that the EU must stick to the principles of Economic and Monetary Union.
"I have been identified over the past few years with the rigour of the Stability and Growth Pact. I am happy for that as I believe that sound public finances are necessary. Not sufficient but necessary. European governments should not accumulate high public debts because this is not fair for our children. It is as simple as that," he said.
