EU tells newcomers to start cutting budget deficits

At the same time, Dutch Finance Minister Gerrit Zalm, spokesman for the EU finance ministers for the next six months, said wealthy EU states are aware that the newcomers face tough choices in cutting their budget gaps to below three percent of gross domestic product as EU budget rules require.

"We already have a lot of problems keeping our budget deficits under control. Their challenges in the budgetary field are even bigger than the challenges we face," Zalm said at a news conference after the EU's 25 finance ministers met.

Cyprus, the Czech Republic, Hungary, Malta, Poland and Slovakia - the six high-deficit newcomers - now have until November 5 to take steps to ensure their 2005 budget deficits will not exceed levels they promised in mid-term budget programmes laid out earlier this year.

Separately, ministers also decided to spare Italy an embarrassing "early warning" on its big budget deficit after Prime Minister Silvio Berlusconi promised a package of quick steps that will save some 7.5 billion euros by the end of 2004.

But finance ministers pressed ahead with budget disciplinary action against Greece, which broke the EU deficit cap in 2003, but set the euro zone member a stricter timetable to cut the shortfall than for the new EU member states.

Under EU rules, governments are required to bring their public finances into a healthy balance over the medium term or face fines if deficits stay too high. Yet slow economic growth in recent years has boosted unemployment and social spending while throttling tax revenues, making defict cutting difficult.


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European Monetary Affairs Commissioner Joaquin Almunia said he was pleased that EU finance ministers had accepted Commission recommendations, giving the six newcomers between one and four years to trim the deficit to below the ceiling.

This deficit cap is also a key criterion for any EU member that wants to join the euro zone.

The EU admitted 10 countries, mostly from central and eastern European, as new members on May 1. The Commission, the EU's executive, has since launched an excessive budget procedure against the six.

EU ministers sealed the Commission's decision that gives Poland, by far the biggest EU entrant, until 2007 to bring its budget deficit to below the EU's limit from 5.7 percent planned in 2004, in line with national plans.

Slovakia, whose budget gap is seen around four percent of GDP this year, also has until 2007 to achieve the EU budget cap.

The Czech Republic and Hungary were given the 2008 deadline, as they had requested. The Prague government recorded a deficit of 12.9 percent of GDP last year, while Hungary has set the gap at 4.6 percent this year.

Cyprus was given until 2005 to cut its deficit to EU limits and Malta until 2006.

EU ministers made no reference to domestic politics, but analysts say it could harm economic programmes in some countries, notably Poland and the Czech Republic.

The left-wing Czech government of Vladimir Spidla has recently collapsed, with parliamentary support for his successor Stanislav Gross uncertain.

In Poland, new Prime Minister Marek Belka's shaky left-wing government may shy away from unpopular spending cuts in the run-up to general elections, expected next spring.

Source: Reuters