THE European Commission is expected to paint a brighter economic picture of the European Union in its autumn forecasts out on Wednesday.
But the release of the outlook is likely to be overshadowed by a controversial decision to allow France to use 37.5 billion francs transferred from state telephone company France Telecom to reduce its huge budget deficit.
In May, the Commission downgraded its overall EU growth forecast to 1.5 per cent in 1996 after economic activity slowed unexpectedly towards the end of 1995. But on Wednesday it is expected to say that economic growth is back on track due mainly to a stronger than expected recovery in Germany.
Commission and monetary sources now expect the 1996 growth forecasts will be higher. This is in line with the prediction last week by six leading German economic institutes that Germany's gross domestic product (QDP) will grow 1.5 per cant this year. The Commission's spring forecast was based on German growth of just 0.5 per cent.
More controversially, the twice yearly exercise is also expected to show that a large majority of the 15 member states will meet the EU's key budget deficit target of 3 per cent of GDP in 1997, the year on which countries' ability to join the planned single currency in 1999 will be judged.
In May, the Commission said only seven countries were safe but some reports now say it has raised this number to 10, adding Belgium, Austria and Sweden to the original seven - Germany, France, Denmark, Ireland, Luxembourg, the Netherlands and Finland.
The Belgian budget for next year, which was adopted in October, sets a public deficit target of 2.9 per cent compared with the Commission's May forecast of 3.7 per cent.
The Swedish and Austrian authorities are also optimistic their countries public deficits will meet the required target. The Commission's previous forecast was 3.1 per cent for both.
But the rosier picture is expected to be dulled by the decision last Thursday to allow France to use the France Telecom cash to help meet the deficit target. The decision opens the way for further desperate, last minute efforts, using what some critics call creative accounting methods, to meet the targets for Economic and Monetary Union set in the EU's Maastricht Treaty.
It immediately sparked criticism in Germany, a strong advocate of sustainable and durable economic stability as the prerequisite for a strong euro. "I think it is wrong . . . it challenges other countries which seemingly do not fulfil the criteria to take similar measures," a Bundesbank council member, Mr Klau Dieter Kuehbacher, has said.
