Six newcomers get four-month deficit deadline

The European Union yesterday set a four-month deadline for six new members to take steps to cut large budget deficits to below the EU's required level.

At the same time Dutch Finance Minister Mr Gerrit Zalm, spokesman for the EU finance ministers for the next six months, said wealthy EU states are aware that the newcomers face tough choices in cutting their budget gaps to below 3 per cent of gross domestic product as EU budget rules require.

"We already have a lot of problems keeping our budget deficits under control. Their challenges in the budgetary field are even bigger than the challenges we face," Mr Zalm said.

Cyprus, the Czech Republic, Hungary, Malta, Poland and Slovakia - the six high-deficit newcomers - now have until November 5th to take steps to ensure their 2005 budget deficits will not exceed levels they promised in mid-term budget programmes laid out earlier this year.

Finance ministers went ahead with budget disciplinary action against Greece, which broke the EU deficit cap in 2003, but set the euro zone member a stricter timetable to cut the shortfall than for the new EU member states.

Under EU rules, governments are required to bring their public finances into a healthy balance over the medium term or face fines if deficits stay too high. Yet slow economic growth in recent years has boosted unemployment and social spending while throttling tax revenues, making deficit cutting difficult.

The European Monetary Affairs Commissioner, Mr Joaquin Almunia, said he was pleased that EU finance ministers had accepted Commission recommendations, giving the six newcomers between one and four years to trim the deficit to below the ceiling.

This deficit cap is also a key criterion for any EU member-state that wants to join the euro zone group.

The EU admitted 10 countries, mostly from central and eastern Europe, as new members on May 1st. The Commission, the EU's executive, has since launched an excessive budget procedure against the six.

EU ministers sealed the Commission's decision that gives Poland, by far the biggest EU entrant, until 2007 to bring its budget deficit to below the EU's limit from 5.7 per cent planned in 2004.

Slovakia, whose budget gap is seen at around 4 per cent of GDP this year, also has until 2007 to achieve the EU budget cap. - (Reuters)