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EU to give Poland august 27 deadline on deficit moves

European Union finance ministers will give Poland a deadline of August 27 to adopt more strenuous measures to narrow the budget deficit to meet the criteria to join the euro area.

Poland, whose budget deficit has exceeded the EU limit since it joined the bloc in 2004, told the EU last November that it plans to narrow the deficit to 3.4% of GDP this year from an estimated 3.9% in 2006. The government's target is 3.1% of GDP in 2008 and 2.9% in 2009, below the EU's 3% ceiling to qualify for euro adoption. „The action taken so far doesn't appear adequate and the planned measures appear insufficient to achieve that result,” according to a draft report to be approved tomorrow by finance ministers meeting in Brussels. „The Polish authorities should put an end to the present excessive deficit situation by 2007 at the latest.” Poland is obliged to narrow its budget deficit to qualify for euro adoption, a commitment that applies to all 10 countries that joined the EU in 2004. The Polish government estimates it will meet the requirements by 2009, though it has yet to set a target date for the currency switch.

The finance ministers expect Poland „to take effective action to this end” by August 27, according to the document. The Polish authorities should reduce the deficit „in a credible and sustainable manner” by ensuring „an improvement of the structural balance by 0.5 percentage points of GDP between 2006 and 2007,” it said. The commission, the EU's executive body, said on February 7 that Poland's government relied too much on the country's economic growth outlook and that „additional measures, especially on the expenditure side,” were needed to bring down the deficit. The commission estimated that Poland would at most be able to reduce the budget deficit to 3.7% of GDP this year instead of the planned 3.4%. The finance ministers note there are „significant uncertainties about the effective implementation of planned reforms and a lack of information on the measures supporting the envisaged expenditure restraint, which appear to be in an early conceptual phase.”

Poland, the largest of the new EU members, estimates that accounting-rule changes which meant the commission refused to extend the deadline for budget reduction by two years and also declined to Poland to classify payments to private pension funds as state revenue will add a combined 1.9 percentage points to the budget shortfall. Budgetary consolidation measures „should secure a lasting improvement in the general government balance, while being geared towards enhancing the quality of the public finances and reinforcing the growth potential of the economy,” according to the document. (Bloomberg)