The EU today warned the UK that its projected budget deficits are in danger of contravening the Stability Pact due to the increased risk from global uncertainties. The EU Council of Ministers said that the UK, which is not a member of the eurozone, had forecast deficits based on "optimistic" economic forecasts that needed to be adjusted because of "downside risks to growth". Even though it is not part of the eurozone, the UK is still bound by the criteria laid down in the Maastricht treaty, on which the Stability and Growth Pact is based and which calls for public deficits to be kept to less than 3pc of GDP.
But, unlike the 12 countries which have adopted the euro, the UK is not subject to sanctions if its deficit exceeds the limit. The warning comes barely a week after the President of the European Commission, Romano Prodi, said that the EU should be a lot more flexible when it comes to adhering to the Stability Pact. //www.fxcentre.com