The European Commission said today budgetary policy in economic and monetary union was facing its first real test as it expressed fresh concern on prospects for euro area growth.
In a report entitled
Public Finances in Economic and Monetary Union
in 2001, it said its forecasts for deficits in Italy and Germany, which were already more pessimistic than official government estimates, could be missed due to a combination of falling tax revenues and unforeseen spending.
European Economic Affairs Commissioner Mr Pedro Solbes told a news conference the Commission now expected euro area gross domestic product (GDP) to rise close to 2.5 per cent in 2001 compared with a forecast of 2.8 per cent made in April.
"The current economic downturn will provide the first real test of the effectiveness of the euro-area budgetary surveillance process," Mr Solbes added.
Many of the recommendations in the report mirrored advice in the EU's broad economic policy guidelines endorsed two weeks ago at an EU summit in Gothenburg,although the message on the immediate outlook for the economy was gloomier.
The report reiterated a Commission call for closer cooperation on budgetary policies at European level and advocated a rethink on the timing of the presentation and examination of countries' annual budgetary stability plans.
The Commission report also repeated a call for countries to agree to pre-inform EU finance ministers of major budgetary decisions before they are finally decided or adopted.
Mr Solbes said he expected the proposals to lead to lengthy discussion among finance ministers and said it was unlikely changes could be implemented in time for this autumn's budget season.