European Commission warns Britain over government deficit

The European Commission on Wednesday adopted a report on the budgetary situation of Britain, warning that high deficit cannot be explained by the country's economic situation.

Britain last month notified the commission, the executive body of the European Union (EU), that the general government deficit in the 2004/05 financial year exceeded the ceiling of 3 percent of GDP required by the Maastricht Treaty.

Under EU rules, the European Commission must draft a report when the 3 percent deficit limit is exceeded by a member state.

This is the second consecutive year that the British deficit is above 3 percent. In the previous financial year, it was also 3.2 percent. The British fiscal year ends on March 31.

The commission report indicates that Britain's exceeding deficit cannot be explained by the country's economic situation as domestic GDP growth was above potential in the last two years -- 3. 2 percent in 2004 and 2.9 percent in 2005.

Although the deficit is close to the reference value, it has been above 3 percent for the past two years and may not be corrected in the ongoing financial year, says the report.

The report notes, however, that Britain's debt, at 40.8 percent of its GDP in 2004/05, is well below the 60 percent reference value set by the Maastricht Treaty.

As required by the treaty, the European Commission will wait for the opinion of the Economic and Financial Committee before making its opinion on whether the UK deficit is excessive and whether recommendations ought to be issued.

Last year, the commission concluded, after consulting the EFC, that no recommendations were necessary since it was considered Britain's deficit was close to the reference value and likely to be temporary.

Source: Xinhua