EMU: BUDGET DEFICITS MUST BE TRIMMED FURTHER DESPITE ECONOMIC UPTURN.

• Position: Economic and Monetary Union

There are "very clear" signs of recovery, according to the Eurogroup's President Jean-Claude Juncker of Luxembourg. Consumer and business confidence indicators are set fair. Mr Almunia confirmed that ministers are still anticipating growth of at least 1.9% for 2006, adding that "the outlook is even better". The Commission may review its own autumn economic forecasts upwards. The only clouds on the horizon are oil prices and "continuing global imbalances" (notably the United States' huge budget deficit) which the EU will continue to monitor closely.

Germany backs a "constructive solution".

Regarding Germany, Mr Almunia once again took a particularly cautious line, blowing hot and cold in indicating that account must be taken of good results from the 2005 tax year and that the new coalition's "commitment to budgetary discipline". That said, even if Germany were to continue running an excessive deficit in 2006, the Commission is unlikely to adopt any recommendation "undermining Germany's economic recovery" which, the Commissioner insists, "remains an absolute priority". Mr Almunia indicated that discussions are continuing with the German government to ensure strict application of the pact and that the aim above all is to find "a constructive solution". He nevertheless refused to comment on whether the Commission has already decided to step up a gear (Germany henceforth risks being fined). Mr Almunia has already suggested that Germany should commit to cutting its deficit below the 3% threshold by the end of 2007 (its deficit was 3.5% in 2005).

Regarding France's deficit, Mr Almunia...