September 25, 2002	Wednesday	Rajab 17, 1423

BRUSSELS, Sept 24: The European Commission has set back to 2006 a previous deadline of 2004 for euro-zone countries to balance their budgets, an official with the European Union’s executive said on Tuesday.

Germany, France and Italy are all at risk of overshooting the budget deficit limit of 3.0 per cent of gross domestic product (GDP) for euro nations, the official said.

Portugal’s deficit for last year had been confirmed at 4.1 per cent of GDP, well over the limit set out in the pact, which governs the finances of euro member countries, he said.

“There should also be agreement that, should growth accelerate, a more ambitious structural adjustment path would be required,” he said.

“This would imply that close-to-balance would be reached in 2006 at the latest.”

Failure to respect the 3.0 per cent limit can lead to sanctions by other EU members under the 1997 Growth and Stability Pact.

Germany, instrumental in drawing up the pact in the first place, only narrowly escaped a humiliating dressing down by its European partners earlier this year by pledging to meet the 2004 deadline.

But experts believe that pledge will be impossible to fulfil given the length and depth of the global downturn and the cost of repairing the extensive damage wreaked earlier this year by the worst flooding in living memory.

The commission official said the floods, along with tax shortfalls and spending overruns in Germany, meant “that this year’s deficit might exceed the three per cent of GDP threshold”.

The official noted that the French government had recently estimated this year’s deficit at 2.6 per cent of GDP.

“The safety margin for dealing with negative surprises without breaching the three per cent of GDP deficit threshold has become dangerously small,” he warned.

Germany, France, Italy and Portugal had all failed to pad out their coffers during economic expansion and were now paying the price at a time of economic hardship, the official said.

“As a result, economic policy now faces difficult choices. Fiscal discipline, one of the cornerstones of Europe’s strategy for growth and employment, and for the good functioning of EMU (economic and monetary union), is being put under stress.”—AFP