The European Central Bank has warned that euro zone governments are spending beyond their means, leaving them vulnerable to future economic turmoil.
'Following a relatively favourable fiscal outcome in 2007, public finances in the euro area look set to deteriorate,' the ECB said in its June monthly bulletin.
The average general government budget deficit - when a government spends more than it earns from taxes and sales of state assets - in the euro zone is projected to increase again in 2008 and 2009, the ECB said. This is partly due to slowing economic growth.
The bank added that governments should not take all the credit for improvements in their finances last year and should have implemented more reforms when economic times were good.
The ECB said governments had used part of the money from windfalls to finance increased sending or tax cuts, rather than to speed up cutting budget deficits or their debt.
