Incoming British government must tackle rising debt: EU

5th May 2010, Comments 0 comments

New EU forecasts on Wednesday on the eve of the British general election, put Britain under the highest public deficit levels in Europe, with Brussels warning that the next government must focus first on this.

British Prime Minister Gordon Brown could take some solace in the relatively high growth rate of the national economy, expected to rise to 1.2 percent this year, above the EU average and much higher than earlier predictions.

However the level of Britain's public deficit against economic output is estimated to be worse than that of Greece, which has gone cap-in-hand to the eurozone and the IMF for a multi billion euro rescue package.

"The first thing for a new government to do is to agree on a convincing and ambitious policy programme of fiscal consolidation to start reducing the very high deficit, and stabilise the high debt level," said the EU's economic affairs commissioner Olli Rehn.

Britain's "very high deficit" and overall high debt level is "by far the most important challenge for the new government. I trust that, whatever the colour of government, it will take these measures. It will need broad political consensus to achieve this key goal," he said.

The economy has been at the heart of the election campaign, with a major difference between the ruling Labour party and the opposition Conservatives over how to tackle the deficit problem.

While the Conservatives, leading in pre-vote opinion polls, are promising deep budget cuts this year, Labour insists that such measures should be put off until 2011 to avoid strangling the recovery and throwing the country back into recession.

Rehn's talk of the need for "broad political consensus" is a nod to the high probability that Thursday's general election will result in a rare coalition government in Britain.

Britain's public deficit level in 2010 is forecast to hit 12 percent of output, the highest rate among the 27 EU nations.

Of the others only Ireland's deficit rate was in double figures while the estimate for Greece was down to 9.3 percent from 13.6 percent last year.

The nominal EU limit, which survives only theoretically at the moment, is three percent.

The overall level of British debt was predicted to hit 79.1 percent this year, well above the EU's normal 60 percent ceiling but in line with the average rate for European Union members recovering from the global recession.

While Britain is not a eurozone nation, and thus not bound by its fiscal rules, the maximum debt and deficit figures are a benchmark for all EU member states.

Overall the EU Commission saw a "fragile recovery in the face of headwinds" for the British economy, regardless of who wins on Thursday.

"Restoring the UK public finances is a central task," the commission said in its report.

"They have been greatly weakened, by a combination of the severe downturn, its impact on previously tax-rich income and expenditure, the operation of automatic stabilisers and the fiscal stimulus," it added.

© 2010 AFP

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