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EU Commission to

meet on excessive

budget deficits

BRUSSELS: The European Commission will decide on Wednesday which EU states have excessive budget deficits and debts and how they should be corrected, a Commission official said on Friday.

The Commission's annual exercise is part of the preparation for creating the European single currency in 1999. It will send confidential individual reports to European Union finance ministers who will decide on measures needed to cut national deficits.

To qualify for the final stage of Economic and Monetary Union (EMU), with its single EU currency, the ratio of a country's budget deficit to gross domestic product must be no more than three percent. For government debt, a country must be at or approaching a debt to GDP ratio of 60 percent.

Under the Maastricht treaty, EU finance ministers can make recommendations to those states whose deficits it rules are excessive.

A year ago only Germany, Luxembourg and Ireland were found to meet the targets, but as the German budget deficit rose to an estimated 3.6 percent in 1995 from 2.6 percent in 1994 it may now fall into the excessive deficit category.

The EU's powerful monetary committee of national treasury and central bank officials recently stressed the need to tighten EMU procedures an in particular the excessive deficit exercise.

"Vigilance is needed to ensure that this (the excessive deficit) procedure always retains its effectiveness," the committee's chairman Nigel Wicks said in a letter to the current EU president, Italy's Prime Minister Lamberto Dini.

The committee insisted on the significance of excluding each EU state failing to control government deficits and debts from the vote on its excessive-deficit recommendation.

This was the case last year, but some countries have tried to soften the rules.

The Commission warned the EU's poorer members last year that under the terms of the treaty, as from 1996 it could withhold aid funds if they failed to put their finances in order.

But it is doubtful whether the threat, aimed at Spain, Portugal and Greece, would be carried out given the current economic downturn which has made achievement of economic objectives more difficult for all EU members._Reuter