EC to advise Britain on how to cut budget deficit

THE European Commission is to make recommendations to Britain on how to cut its budget deficit. Kenneth Clarke, the Chancellor, said after yesterday's meeting of European finance ministers: 'We agreed that Britain, along with nine other EU members, is running an excessive deficit.'

The Maastricht treaty sets out economic targets, and Britain and the others have failed to meet them, Mr Clarke said. The Commission will now draw up recommendations to the offending states as to how to get their economies into line.

The recommendations are likely to consist of advice to stick more closely to Britain's economic strategy. Last year Britain became involved in a row with Brussels over the causes of its budget deficit, which the Government claims is largely the result of slow growth in earlier years.

The EU criteria are intended to set guidelines for deciding which countries can become members of a single currency, but Britain must obey them even if it is not going to join monetary union.

The Chancellor said: 'Tackling that deficit is one of the British priorities at the moment.' He added that the goal was to return to tax reductions once the budget imbalance had been dealt with.

The EU decision is another step towards forming a single currency. The EU's 12 members will make their first effort at monetary union in 1996, but if they do not succeed then, they are all but certain to go ahead by the end of the century.

Interest in a single currency has returned as Europe's economy has revived and calm has returned to the foreign exchange markets after the near-collapse of the European monetary system last year.

Only Ireland and Luxembourg meet the EU's criteria at the moment, with Ireland's success coming in spite of the fact that its national debt exceeds the level of 60 per cent of GDP laid down in Maastricht. However, the Commission said Ireland met the spirit of the rules, since its debt is coming down rapidly.

Germany has objected to the way the Commission made its judgement, although it did not reiterate its criticism yesterday. It is concerned that it may be forced into monetary union with states that are not economically ready.

Hamish McRae, page 16