Ministers Talk Tough on Eu Budget Busters

EU finance ministers yesterday ordered Portugal to bring its ballooning budget deficit under control by the end of this year in an attempt to shore up the euro and Europe's faltering economy.

They also signalled that France and Germany, two of the EU's most powerful members, would have to endure similar remedial action soon. Apparently ignoring a Franco-German proposal to relax the rigid stability and growth pact, the ministers told Portugal it must get its deficit below the maximum 3% of gross domestic product by the end of this year, scrapping a more generous deadline of March 2003.

Lisbon ran a huge 4.1% deficit last year, prompting the European commission to launch its so-called excessive deficit procedure against Portugal, and yesterday ministers endorsed that approach.

The prospect of similar action against Germany - the EU's biggest economy - and France came a step closer yesterday with many ministers hinting that Berlin and Paris were almost certain to be faced with an embarrassing official warning or, worse, a formal peer review, as endured by Portugal, with the prospect of large fines. Belgium's finance minister, Didier Reynders, said that if French economic data remained unchanged, Paris would definitely be on the receiving end of a warning. "The commission has said that if we are going to have the same forecast on November 13 as now, the commission will send an early warning."

Pedro Solbes, the EU monetary affairs commissioner, was equally confident of censure for Paris. "That is one of the possibilities," he conceded. "The main possibility."

France's deficit is seen as rising to 2.8% next year, perilously close to the 3% limit, up from 2.6% this year. To make matters worse Paris has publicly refused to take the necessary remedial action.

The situation in Germany is far worse. Its deficit could be 3.7% this year and is forecast to fall to a still high 3.2% in 2003. France and Germany have teamed up and said the pact should be less rigid. The proposal seemed to be largely ignored yesterday with small fiscally disciplined countries such as Finland unwilling to sanction a relaxation.

Separately Gordon Brown, the chancellor of the exchequer, used yesterday's meeting to lash Switzerland for its failure to end its notorious banking secrecy. The Swiss are being regularly asked to disclose sensitive information about British and other EU tax cheats so a new cross-border EU savings tax can be effectively introduced. The Swiss are not playing ball and Mr Brown said their intransigence was unacceptable.

"All we are asking is for Switzerland to exchange information on the savings accounts of EU residents, not their own citizens. It runs counter to the sort of healthy, fair tax competition which benefits countries, businesses and individual taxpayers. As a major world financial centre, Switzerland has a responsibility to lead by example."

Swiss bankers reacted angrily to the claims. Hans-Peter Bauer, managing director of UBS, the Swiss bank, said Mr Brown's argument "errs in substance". He said it was a "bit irritating" that the chancellor was repeating complaints he had made in the past. Mr Bauer said Swizerland "had been most cooperative" in the fight against money laundering and terrorist financing.