EU expected to lower growth projections

The European Commission will unveil drastically reduced growth forecasts today that could set the stage for a policy clash between the European Union's executive and some governments in the 15-nation area.

The Commission has already flagged a cut in its forecasts following September's attacks on the United States, and its 2001 forecast for the 12-nation euro-zone is expected to be around 1.5 per cent, more than one percentage point below its April forecasts and close to OECD predictions made on Tuesday.

But it is the Commission's view on individual EU countries which really matters as this will affect its future assessment of their budget plans and the policy advice it will dole out - which EU states must take on board.

Any marked gap between the Commission's national growth forecasts and those made by EU states will have implications for expected budget positions and could prompt the Commission to recommend that some governments change their policy response to the current slowdown.

"The forecasts will be more important if the difference between them and the country forecasts is so big that it would lead to a different outcome on budgets," said one EU diplomat.

European Monetary Affairs Commissioner Mr Pedro Solbes said in October that many countries' growth forecasts could be considered overly optimistic and that the Commission would aim to assess updated budget programmes "against a more realistic background".

France, one of four euro-zone countries which have been told that they have limited room for fiscal slippage, may be among those heading for a reality check on its growth forecasts.