The European Central Bank (ECB) yesterday criticised several euro-zone countries for failing to reduce their public sector budget deficits as required by the European Union's stability pact.
The bank said a number of countries were "not expected to achieve sound budgetary positions in 2001 or even in 2002", naming France, Germany, Italy and Portugal.
The stability and growth pact, adopted in 1997, obliges European governments to achieve budgets in balance or in surplus over the medium term. It is backed by sanctions to prevent public sector deficits exceeding 3 per cent of GDP.
The ECB said government budget balances in the euro zone were expected to deteriorate this year for the first time since 1993. The "projected backsliding" would increase the "average general government deficit to GDP ratio from 0.7 per cent in 2000 to 0.8 per cent in 2001".
The ECB yesterday also scaled back growth forecasts for the euro zone, acknowledging that the global slowdown had been sharper than expected.
The projections, released with the bank's June bulletin, forecast euro-zone growth this year of 2.2-2.8 per cent, down from 2.63.6 per cent, and 2.1-3.1 per cent in 2002 against real GDP growth of 3.4 per cent last year.
It also raised its inflation projections for 2001 to 2.3-2.7 per cent from 1.8-2.8 per cent, while revising down its projection for next year to 1.22.4 from 1.3-2.5 per cent.
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