Britain risks breaking EU deficit cap

Britain risks breaking the EU’s 3% deficit cap this year but does not face harsh punishment as it is outside the euro zone, the European Commission said today.

The Commission noted London has ”room for manoeuvre”, however, due to its low debt level.

France risks breaking euro rules on budget deficits for a fourth straight year in 2005 unless it makes ”additional efforts” now, the EC warned .

“We think that the risks of breaching 3% in 2005 exist if additional efforts are not done in 2004,” monetary affairs commissioner Pedro Solbes said in presenting reports on budget forecasts of six countries.

In assessing the budget forecasts of six EU countries, only Ireland got a clean bill of health.

The head office also criticised the Italian economy. Rome’s programme faces risks that “seriously weaken the credibility” of its projections, the Commission said.

France and Germany last year squashed the Commission’s attempts to force them to slash more spending, persuading other countries to effectively suspend disciplinary action for violating euro rules on deficits in exchange for promises to come back in line in 2005.

In Paris, French Budget Minister Alain Lambert said France would stick to its commitments. “We are making all the provisions to respect our engagements,” he said.

At a news conference in Brussels, Solbes acknowledged his difficulty in enforcing the rules. But he said he was determined to keep the strict 3% of gross domestic product limit on public deficits.

“The idea of the fiscal framework is correct, the idea of the 3% is correct,” he insisted. “No modification of treaty is required.”

The Commission said the Netherlands could exceed the 3% limit in 2004. However, Solbes said “Dutch authorities are fully aware of the risks and have taken appropriate measures.”

He said the budget balance in Luxembourg “is expected to deteriorate quite markedly” due to the severe economic slowdown, resulting in a small deficit for the first time in decades.