EU tells Britain to tighten belt

EUROPEAN Union finance ministers told Britain yesterday it was running an excessive budget deficit and gave the country until the 2006/2007 fiscal year to bring the gap below the EU ceiling of 3%.

The ministers acted on a January 11 recommendation from the European Commission, the EU executive, which polices the EU'sbudget rules the Stability and Growth Pact that underpins the single euro currency.

"The Commission's decision and recommendations on the United Kingdom budget deficit have been adopted by the ministers," a diplomat told Reuters.

But the EU has no power to sanction London since it is not a member of the euro, and British officials have signalled that British chancellor of the exchequer Gordon Brown had no intention of changing course to comply.

The commission has said that unless Britain changed fiscal policy, the overall government deficit would rise from 3.2% of GDP in 2004-2005 to 3.4% in the current 2005-2006 financial year.

It would then fall again to 3.2% in 2006-2007, the Commission said. Economic and Monetary Affairs Commissioner Joaquin Almunia said on January 11 he was sure Britain would comply with the recommendation of the 25 EU finance ministers, adding the changes required were "not so huge".

Under the Stability and Growth Pact, Britain is obliged only to try to avoid deficits that exceed the 3% of GDP limit.

Reuters.