EU presidency warns against overspending to stimulate growth

(PRAGUE) - The EU presidency on Thursday warned European nations against running up massive debts in order to stimulate their battered economies, urging them instead to retain tight fiscal control.

"There is no way of concealing the risks attached to the expansion policy through which some countries want to combat the crisis," said Czech Finance Minister Miroslav Kalousek, whose country assumed the EU presidency this month.

"It is very important that the lack of confidence is not (made worse) by untrustworthy policies exercised by some countries," he told reporters in Prague, without mentioning any offending nations.

"Indeed, there is a risk that if discipline is not adhered to, we'll have real problems with refinancing debts."

Kalousek, whose own country posted a budget deficit of around 1.2 percent of gross domestic product (GDP) last year, said he would be "very keen to monitor my colleagues" to see how they fund their extra spending commitments designed to get their economies through the global crisis.

EU rules require member states to limit their annual public deficit to no more than 3.0 percent of GDP but some countries have argued that this ceiling is too restrictive at a time when only governments can take up the slack.

While the European Commission has given member states extra leeway on overspending in light of the deep economic downturn, the Czech EU presidency stressed that any measures should not be open-ended.

"It is extremely important to insist that these are measures which should be short-term measures," Kalousek told visiting reporters from Brussels.

"And it must be hoped that when the period of crisis is over, everybody will come back to fiscal and financial discipline."

He also voiced scepticism at the idea, championed by Britain among others, of reducing sales or value added tax to encourage consumer spending.