Gordon Brown Can't Avoid Europe

Tony Blair's troubles are not confined to overwhelming public skepticism regarding the war in Iraq. The strong economy that has buttressed his government since 1997 is showing cracks.

Indeed, until now, Europe's worries about public finance have centered on Germany, France, and Portugal. Britain seemed a paragon of fiscal prudence. In his forthcoming budget, however, Chancellor of the Exchequer Gordon Brown may need to admit that the UK risks breaching the Maastricht Treaty's deficit limits. Before Britain's next election, an even more worrying admission may be forced on Chancellor Brown: the need to raise taxes to meet his own fiscal rules.

Last November, Chancellor Brown forecast that the UK's budget deficit would rise to £24 billion in 2003/4, then fall to £19 billion by 2004/5-well below the Maastricht Treaty's ceiling of 3% of GDP. But the average forecast among analysts is a £27 billion deficit next year, and some observers project a deficit of £30 billion or more in 2004/05. This will press hard against the Maastricht ceiling.

Two issues are at stake here. One concerns growth. In November, Brown forecast that UK GDP would grow by 2.5-3% in 2003/4, accelerating to 3-3.5% the following year. But independent forecasters disagree here, too. They expect growth of only 2.2% this year and 2.4% next year.