Solbes declares Stability Pact working as he takes errant EU states to task

THE Stability and Growth Pact is working, Economics Commissioner Pedro Solbes insisted as he handed out warnings and started proceedings against six EU States.

His revision downwards of growth for the eurozone to 1.7% from 1.8% led to a drop in the value of the euro against the dollar.

The number of countries exceeding the 3% budget deficit limit set by the pact accounts for more than 75% of the union's economy. Portugal had reduced its excessive deficit and countries were making efforts to keep within the constraints of the pact.

"The pact is functioning because all member States are trying to apply it," he said.

France and Germany are expected to breach the deficit ceiling for the third time next year. Mr Solbes said Germany was making efforts to come back into line, but he was less positive about French intentions.

The Netherlands will be warned of the danger of breaching the pact the first step in the procedure, as their 2003 budget is set to exceed the 3% limit.

Italy's budget will be 2.5% in deficit this year but will exceed the 3% in 2004.

Greece has so far escaped a warning, but eurostat inspectors are to visit Athens because they are not happy with the returns. Greece has had one of the highest rates of growth in the eurozone last year.

Britain, which is outside the eurozone and so cannot be fined for breaching the pact, nevertheless, received a warning that they will have an excessive budget deficit in the year ending March 2004.