EU Warns Poland on Budget Deficit

Poland is not doing enough to reduce a budget deficit that will break EU limits next year as it counts the cost of pension reform, the European Commission said Tuesday.

Current budget plans are "not sufficient to correct the excessive deficit in 2007," it warned.

EU economists forecast that Warsaw is on track to report a deficit of 4 percent next year, above the 3 percent limit set by EU budget rules. Poland's draft budget predicts a 3.7 percent deficit.

Poland should use strong economic growth _ averaging at 5.25 percent a year _ to pay off its debt, the EU executive said.

"This is in the interest of the Polish economy and people irrespective of the target date that is set for the adoption the euro," said EU Economic and Monetary Affairs Commissioner Joaquin Almunia.

Poland, which joined the EU in May 2004 with a deficit above the EU limit, was asked to bring it down below 3 percent by 2007.

It also received a three-year breathing space when it did not have to include its pension reform in the deficit accounting. That ends on April 1, 2007 when the higher figures will have to be used.

Without the pension reform, Poland reported a 2.5 percent deficit last year and estimated 2.1 percent in 2006. Adding in pension costs gives 4.4 percent in 2005 and 4.2 percent this year.

However, the Commission said that the economy's strong rebound this year is set to remain above EU average growth of 2.4 percent over the next two years and this higher tax revenue should make the government's task to cut the debt next year slightly easier.

"Maintaining a deficit above 3 percent affects the debt levels," and has a negative effect on businesses' ability to fund themselves," it said.

EU finance ministers are likely to vote on the Commission's recommendation when they meet again on Nov. 28.

Polish Finance Minister Zyta Gilowska said last week there were no grounds for the criticism as the deficit "is properly controlled and will remain so."

Separately, Gilowska said Poland aimed to meet the criteria for adopting the euro by 2009 and would call a referendum on the currency in 2010.

Poland committed to switching from zloty to the euro when it joined the European Union in 2004, and the requirement is non-negotiable, but Gilowska said the government wanted to gauge the public opinion on the issue.
Source:chron.com