THE European Monetary Institute (EMI) has expressed serious concern that many EU states have not yet managed to rein in their national deficits enough to launch the euro as planned in January 1999.

However, Ireland is one of the few states identified as having an improving budget position last year based on both spending and taxation falling as a percentage of national output.

The forerunner of the European Central Bank warned countries against using one-off tricks to create a better budgetary picture, but said "durable" action had to be taken to ensure a successful move to a single European currency.

"On the fiscal side, the situation remains far from satisfactory in many countries," the EMI president, Mr Alexandre Lamfalussy, wrote in a foreword to the EMI's annual report.

"Despite efforts made at consolidation, which have contributed to a fall in actual deficits, the latter still overshoot the reference values laid down in the treaty in most countries," he added.

However the report says the EU Commission estimates show that in Ireland, the Netherlands and Britain, borrowing fell last year based on both lower expenditure and tax ratios.

The stern tone of the report came as no surprise to analysts who had expected the EMI to take a hard line on the EU's dismal record on debt control.

"If monetary union were left purely down to the EMI, then you could say this report is bad news for the broad EMU story," said Mr Darren Wiliams, European economist at UBS in London.

A key Maastricht Treaty clause calls for national debts to total no more than 60 per cent of gross domestic product (GDP) - or to show significant progress in falling toward this level - and for budget deficits to be 3 per cent or less.

But statistics compiled by the EMI, which date from autumn 1996, showed an overall EU debt position of 73.5 per cent of GDP and a deficit level of 4.4 per cent, well over target.

Germany, the linchpin of the euro project and the third best performer on price stability, had a deficit rate of 4 per cent.