Governments `sitting back on budget deficits'

The European Central Bank has criticised governments for sitting back and doing little to reduce budget deficits now they have qualified for monetary union. Speaking at a conference in Frankfurt, Mr Otmar Issing, the ECB's chief economist, said it was disappointing that governments had failed to seize the chance of last year's buoyant economic growth to reduce deficits. The OECD in its latest report said the euro zone area grew by 2.9 per cent last year. After making an effort to pass the test to enter monetary union, states are now sitting back and the will to continue consolidating government finances appears to have dissipated, according to Mr Issing.

And budget plans for 1999 suggested that there will be no improvement this year and "influenced by the weak economy the result could be even worse".

"Most governments in the euro zone are still far removed from their self-stated goals of achieving balanced budgets, let alone budget surpluses," said Mr Issing.

The average deficit to Gross Domestic Product ratio fell only very slightly in 1998 after having fallen by about 1.5 percentage points in 1997. The Irish economy was an exception, producing a record revenue surplus of £747 million in 1998.