France risks breaking the EU's budget deficit limit every year until 2007 unless it takes more belt-tightening steps and Italy is likely to come close to that cap this year, the European Commission warned today.
The European Union executive also highlighted possible budget risks in Britain, the Netherlands and Greece on the day it filed a lawsuit in the European Court of Justice seeking to overturn November's suspension of EU budget discipline steps by finance ministers.
The Commission is challenging the ministers' decision to put the Stability and Growth Pact "in abeyance" for Germany and France, seen topping the EU deficit cap of three percent of gross domestic product for the third year running in 2004.
"Europe is going through a difficult period, both in terms of actual developments and as regards the implementation of the EU framework for fiscal surveillance," European Monetary Affairs Commissioner Mr Pedro Solbes told a news conference.
The Commission's assessment of France's medium-term budget programme said that if plausible economic and budget assumptions were used, planned budget measures might not be enough to eliminate the excessive deficit in 2005, as Paris has promised.
It told Italy its nominal deficit this year would flirt with the EU deficit cap and warned that its cyclically-adjusted deficit was rising instead of falling at a time when there were risks to the long-term sustainability of its public finances.
While Germany must wait until February for the Commission's views on its budget plans, Mr Solbes said: "A diminishing reduction of the (German) structural deficit in 2004 means higher risks for breaching the three percent (deficit cap) in 2005."
The Commission said even the Netherlands, the toughest stickler for budget discipline, risked breaching the EU limit this year because of the effects of a prolonged recession.
However, Mr Solbes said the Dutch government had taken adequate measures to deal with the risk and warned against too much austerity.
In Greece, debt developments were likely to be less favourable than the government had projected in its medium-term budget plans.
Britain, which remains outside the euro zone, had topped the EU deficit cap in the 2003-2004 financial year though it had yet to be confirmed whether it had run an excessive deficit in the 2003 calendar year, the Commission said.
The EU executive also pointed to the risks of imbalances in the long term and urged the British government to ensure the effectiveness of public services provisions.
Still, it tempered its criticisms by noting that Britain's low debt levels meant there was room for manoeuvre.