EU warns half of Europe risking 'unsustainable' budget deficits

Half of Europe's economies face the threat of "unsustainable" public finance deficits because of the costs of looking after their ageing populations, the European Commission warned yesterday.

It urged them to take action now to ensure they hit European Union targets of balancing their budgets by 2007. The Commission also reiterated its criticism of France for failing to tackle its deficit, which breaches the Maastricht treaty.

In its report, Public Finances in EMU 2003, the Commission said: "There is a risk of unsustainable public finances emerging in about half of EU member states, especially Belgium, Germany, Greece, Spain, France, Italy, Austria, and Portugal."

Its warning comes against a background of rising deficits as weak growth has cut tax receipts and put more pressure on social security systems.

For example, models suggested French debt could be worth almost 250 per cent of GDP by 2050 if the balanced budget goal was met but no extra policy steps were taken.

More policy measures were therefore needed to put public finances on a sounder footing, the EU executive said. It is already having difficulties enforcing budget discipline, as France and Germany have broken the deficit limit of 3 per cent of GDP in 2002 and might do so again in 2003.

The Commission said France, the eurozone's second-biggest economy, had yet to take steps to rein in its deficit unlike Germany and Portugal.

It said it was still uncertain if Germany's deficit would fall back below EU limits in 2003 but said this could be seen in 2004 if growth met expectations.