EU members running excessive deficits

GERMANY Germany, the driving force behind the establishment of the limit of the Stability and Growth Pact, was also the first country to break the rules in 2002.

It has remained in breach of the 3 percent budget deficit ceiling ever since. In November 2003 EU finance ministers suspended disciplinary action against Berlin in a controversial decision that led to reform of the Pact this year. The Commission gave Germany until 2005 to cut its deficit.

But the shortfall this year is seen at 3.7 percent at least, meaning it would bust the Stability and Growth Pact limit for a fourth consecutive year.

Since Germany is unlikely to get below 3 percent before at least 2007, the EU Economic and Monetary Affairs Commissioner Joaquin Almunia has signalled that the EU is likely to step up the proceedings against Germany this Autumn to the last stage before sanctions.


SANCTIONS

Initially mean a non-interest-bearing deposit which the budget sinner must place with the Commission equal to 0.2 percent of its GDP plus a variable component equal to one tenth of the difference between the deficit as a percentage of GDP in the preceding year and the reference value of 3 percent.

However, the total deposit in any one year cannot exceed 0.5 percent of GDP. EU finance ministers convert the deposit into a fine if the deficit is not reduced to within the 3 percent limit two years after the deposit was made.


FRANCE Like Germany, France has been one of the main advocates of the Stability Pact and has broken it every year since 2002. For it too, disciplinary action was suspended by EU finance ministers in 2003.

Paris told the European Commission at the end of August that its budget deficit will fall to 3 percent of GDP in 2005, as required by the European Commission. But the Commission said Paris needed to take additional steps to meet the target this year.

Economic and Monetary Affairs Commissioner Joaquin Almunia said at the Ecofin meeting in Manchester that France could keep its deficit at 3 percent this year if it took action.

The Commission also expects the deficit to rise again above 3.0 percent next year under an unchanged policy scenario.


GREECE

A revision of statistical data in 2004 showed Greece has been above the 3 percent limit every year since 1998. EU finance ministers in April 2005 gave Athens until 2006 to bring the shortfall down to 2.9 percent from 3.7 percent expected in 2005 and 6.1 percent in 2004.

But in August, a Greek newspaper reported the deficit for this year could end up closer to 4 percent and the figure for 2004 could be revised up to 6.4 percent.

Greece is already at the last stage in the EU proceedings so if it does not meet the deficit goals by 2006, and if the delay cannot be explained by special circumstances, it may suffer sanctions.


ITALY

Italy has been above the 3 percent threshold since 2003. EU ministers gave it until the end of 2007 to bring its budget deficit below 3 percent from 4.3 percent expected in 2005.


PORTUGAL

The European Commission recommended that Portugal be given until the end of 2008 to slash its budget deficit to below the European Union limit from 6.0 percent this year -- the widest gap in the 25-nation bloc.

The Commission's recommendation is in line with Portugal's own austerity programme, which increases value added tax, excise taxes and freezes on some public spending.

The Commission recommended that Portugal cut its structural budget deficit by 1.5 percentage point of GDP in 2006 and by 0.75 percentage points in 2007 and 2008 each, suggesting faster tightening could hamper growth.


EURO ZONE CANDIDATES

Six out 10, mostly ex-communist newcomers, were embraced by the EU's excessive deficit procedure once they joined the bloc last May. They proposed deadlines, up to 2008, to cut their budget deficits to below 3 percent of GDP.

The European Commission and EU finance ministers accepted those deadlines and, with the exception of Hungary, declared that the countries were taking sufficient fiscal measures to achieve the deadlines. This effectively froze the budget discipline procedure against them.

Many economists are sceptical whether those deadlines will be met in Hungary, Poland and the Czech Republic.

Euro zone candidates face no fines at the final stage of the deficit discipline procedure, but the EU may freeze large parts of regional aid to budget rule breakers.


POLAND

Poland has until 2007 to lower its budget deficit to below 3 percent of GDP from about 5.3 percent last year and 3.9 percent forecast this year. The newly unveiled 2006 budget draft envisages a deficit of 3.2 percent of GDP.

The government's plan to cut the deficit to 2.2 percent of GDP could be undermined by parliament's refusal to pass several fiscal austerity bills in the run-up to general elections late in September, economists say.

The new government, widely expected to be led by right-wing parties, will ultimately decide on the pace of belt-tightening.


HUNGARY

Hungary was the only new member state, whose fiscal cutbacks plan was initially deemed insufficient to meet a 2008 deadline to lower the budget deficit to beneath 3 percent of GDP.

This was mainly because last year the government repeatedly increased its budget deficit target.

The Commission recommended in July that no further steps are needed against Budapest after the government made additional pledges of fiscal cuts.

EU finance ministers are to debate the recommendation, with many analysts worried that the government's deficit targets would be jeopardised by next year's general election.

The government plans to cut the deficit to 2.9 percent next year from this year's expected 3.6 percent.


CZECH REPUBLIC

The country has until 2008 to lower its deficit to below 3 percent of GDP from 5.3 percent in 2004, with the government targeting shortfalls of 4.7 percent in 2005 and 3.8 percent in 2005 and 3.3 percent in 2007.


SLOVAKIA

The country is seen as the best economic performer, with soundest fiscal policies, among bigger EU newcomers. It is widely expected to meet the 2007 deadline to lower the budget deficit to below 3 percent of GDP from the 3.9 percent targeted in 2005.


CYPRUS

The country is expected to lower its budget deficit to 2.9 percent of GDP this year from 5.2 percent in 2004


MALTA

The country is expected to cut the budget deficit to 2.3 percent of GDP in 2006 from this year's planned 3.7 percent.

Source: Reuters