Portugal gets 'early warning' for breach of stability pact

Portugal has become the first euro-zone country to be disciplined under the Stability and Growth Pact for running a budget deficit in excess of 3 per cent. European Union finance ministers yesterday issued an "early warning" to Lisbon under the pact's excessive deficit procedure and ordered Portugal to move quickly to cut its budget deficit.

The ministers signalled that Germany and France, which are also expected to breach the budget deficit limit, could be next in line to be disciplined. But officials said that it is unlikely that any of the countries involved will be fined for breaching the pact's rules.

Portugal's budget deficit was 4.1 per cent of GDP in 2001 but a new centre-right government, in office since April, says it will reduce the deficit to 2.8 per cent this year. Portugal's finance minister, Ms Manuela Ferreira Leite, said her government would bring the country's finances into line by the end of this year.

"The end of the world for us would be finding that we weren't taking the necessary measures and that we could face sanctions," she said.

Germany's finance minister, Mr Hans Eichel, yesterday repeated his prediction that Germany would breach the 3 per cent budget ceiling this year.

Economic Affairs Commissioner Mr Pedro Solbes said the Commission would recommend an immediate triggering of the excessive deficit procedure each time a member-state breaks the rules.

The pact's credibility was called into question last month after Commission President Mr Romano Prodi described it as "stupid".

Greek finance minister Mr Nikos Christodoulakis, who is chairing meetings of euro-zone finance ministers, yesterday criticised the debate over the pact. "The discussion that has opened recently is not very helpful because the European public receives very contradictory signals."

Austria's finance minister, Mr Karl-Heinz Grasser, suggested that stricter compliance with the pact by member-states would make it easier for the European Central Bank (ECB) to cut interest rates.

The ECB's Governing Council meets in Frankfurt tomorrow but few observers expect any move on interest rates.

The European Union has agreed new rules on information released by issuers of shares and bonds, despite Irish objections.

The Republic abstained last night when EU finance ministers voted to allow firms to list securities on exchanges everywhere in the bloc on the basis of a single disclosure document or prospectus.

All other EU member-states voted in favour of the new rules.

The Government wanted to allow the Irish stock exchange to continue vetting share prospectuses but the new rules mean that, in five years, this role must be given to the Central Bank. Ireland was left isolated after Britain and Germany dropped their objections to the rules, which the Internal Market Commissioner, Mr Frits Bolkestein, said would cut the cost to companies of raising capital.