Chancellor faces EU censure over deficit

The FT's Tobias Buck reports that Gordon Brown faces EU censure over deficit:

Gordon Brown, the UK chancellor of the exchequer, faces embarrassing censure from the European Commission next week, when Brussels will recommend the launch of an excessive deficit procedure against Britain for its failure to keep public borrowing below 3 per cent of gross domestic product.

Britain is on track to break the budget deficit ceiling enshrined in the European Union’s stability and growth pact for four years running, according to the latest Commission estimates.

Borrowing reached 3.2 per cent of GDP in the financial years to March 2004 and March 2005, and is expected to rise to 3.4 per cent in 2005-2006. The deficit is also expected to remain above 3 per cent in the fiscal year 2006-2007.

These predictions mean the Commission will now formally call on EU finance ministers to declare that Britain is running an “excessive deficit”. It will also urge member states to tell London to bring borrowing below the 3 per cent threshold by 2006-2007 – one year earlier than forecast.

Brussels had previously shied away from such a step, arguing that Britain’s deficit was temporary. However, the recent deterioration in the country’s public finances means that excuse is no longer acceptable to the Commission, which is tasked with upholding the strictures of the stability pact.

The UK is bound by the pact’s provisions, even though it is not a member of the 12-member eurozone. However, unlike the governments that have adopted the single currency, Britain cannot be financially penalised.

It is a little curious that the UK should be bound by the Growth and Stability Pact limits when it is not part of the Euro/EMU, and I expect HM Treasury will give this declaration short shift.

Comments

[Edward Hugh]

"It is a little curious that the UK should be bound by the Growth and Stability Pact"

I agree. I think this is essentially a grey area left-over from the days when the UK was thinking of EMU convergence. Basically, opting out of the GSP would make explicit what is already implicit: the UK won't be joining the euro. Politically it is not expedient to do this at present, so the show goes on.

But really questioning Britain's right to set its own fiscal and monetary policy at a time when the Spanish economy is more or less out of control due to its lack of monetary and currency autonomy has to be a sick joke. Ditto the Italian public debt.

In sum: this declaration should be given short shift.

[hirvi]

Indeed, Edward.

Interestingly, Sir Christopher Meyer writes in his "DC Confidential" book that Britain didn't join the euro because there was no pressure from US investors to do so, but if there had been, sterling would have been replaced "faster than you could say Gordon Brown".

But he's being mischievous, isn't he?