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EU action on Britain over budget deficit

European Union finance ministers have voted to condemn Britain for flagrant breach of the Maastricht spending rules, irked that the UK government has not even tried to keep its budget deficit below the treaty limit of 3pc of national income.

By its own admission, Labour will need to borrow at least 3.2pc of GDP this year, even if the economy holds up well. Brussels described this as "prima facie evidence of a planned excessive deficit". It warned that UK public finances were no longer on a sustainable course after the spending blitz of recent years.

Yesterday's vote is the first time the EU has launched disciplinary action against a big Western state under the revamped Growth and Stability Pact. The UK now has the worst fiscal profile of any developed country in the North Atlantic sphere.

The European Commission expects the UK's public debt to rise from 43.2pc of GDP last year to 47.5pc by the end of next year. The ritual of naming and shaming at EU meetings is likely to prove a constant thorn in the side for Labour.

There is no chance that the deficit can be brought back under control in the foreseeable future. The deficit always deteriorates in a downturn. Capital Economics said borrowing needs could explode to £120bn a year if the country tips into a severe recession, as many now fear.

Britain is now in an ugly predicament. Unlike Spain or the US, it cannot easily resort to a fiscal boost - either tax cuts or extra spending - to cushion the effects of the property collapse.

Read the full article in the Daily Telegraph

It looks as if not only could the £ end up dropping below the Euro, itself not in the best of shape, but that Britain would not be allowed to join if it did. The best news is that the Bank of England has not cut interest rates this month, but given the disastrously unhealthy lock-in between the housing market and the rest of the economy, there is still serious trouble ahead. With the country in this kind of economic mess, what do its leaders think it is doing trying to act like a world power, purchasing the two new aircraft carriers to enable it to project its force and protect British interests round the world?

Surely the best way to protect British interests would be to sort out the problems inside the country?
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