AMSTERDAM, March 26 (Reuters) - European Central Bank Governing Council member Nout Wellink expressed concern on Thursday that government budget deficits may not balance automatically as countries spend on measures to prop up their economies.
Noting that an auction of UK government bonds had failed to reach full subscription this week, Wellink warned that governments would be under pressure to better outline their budgets and funding to capital markets. [ID:nLP456926]
"What has happened in Britain can be seen as an incident," Wellink told reporters at the publication of the annual report of the Dutch Central Bank, which he leads.
"Budget deficits, the United States is an example, are running up dramatically. There will be tension and pressure on those markets unless governments are able to do what they are promising," Wellink said.
Wellink said the European Union's budget deficit could rise to between 4 and 5 percent of the region's Gross Domestic Product (GDP) this year, excluding any already announced stimulus plans, with peaks of 9 and 11 percent deficits for Britain and Ireland respectively.
If budgets fall into deficits due to automatic stabilisers, such as unemployment benefits, budgets would balance out again if economies recovered sufficiently, said Wellink in the annual report of the Dutch central bank, which he leads.
"Looking at the unusual, deep character of the recession, which probably goes hand in hand with pressure on the economic trend growth path, the chance is big that this will not be the case," Wellink said about the automatic budget balancing.
Wellink also warned that the U.S. government's assumptions were "particularly optimistic."
Discretionary policy, such as tax cuts, were measures that will be difficult to reverse in the future, and Wellink singled out the United States, which he said faced deficits of 12 and 8 percent for 2009 and 2010 respectively.
"The government has faith that budget finances will quickly improve in later years but the assumptions for this confidence are particularly optimistic," Wellink said on the U.S. budget outlook. (Reporting by Gilbert Kreijger)