MOUNTING BUDGET deficits in the 10 new members of the European Union could trigger a financial crisis, the European Central Bank has warned.
The ECB said the 10, which join the EU on 1 May, would need to cut spending or raise taxes to bring their budget deficits closer to the target of 3 per cent of GDP. Six of the 10 are running budget deficits in breach of the Maastricht Treaty limits that were used to admonish France and Germany.
The ECB said the latest figures showed that the average deficit ballooned from 3.8 per cent in 2001 to 5.1 per cent in 2002 despite a pick-up in growth.
"In most acceding countries the current fiscal deficits seems to be mainly of a structural nature," it said in its latest monthly bulletin. "To stabilise the fiscal situation, the acceding countries will need to further reform their public expenditure and revenue structures in a sustainable and forward looking manner."
Hungary ratcheted up a 9 per cent deficit in 2002, the worst of the 10, followed by Slovakia and the Czech Republic on 7 per cent. The Czech government, and Malta, Poland, Cyprus, Lithuania and Estonia, forecast that their fiscal positions probably worsened last year.
The ECB said the accession countries would also be running current account deficits - the sum of their trade …