(BRUSSELS) - Public finances improved markedly last year in Europe, but many governments are still failing to use an economic boom to further lower their deficits, the European Commission said Wednesday.

With Europe enjoying faster economic growth than both the United States and Japan, the European Union made major headway in driving down public deficits last year as more tax revenues than expected flooded in.

The average public deficit in the 27-nation European Union fell last year to 1.7 percent of gross domestic product from 2.4 percent in 2005 while in the 13-nation eurozone the average deficit dropped to 1.6 percent from 2.5 percent.

The decline leaves only Italy and Portugal in the eurozone and Britain, the Czech Republic, Hungary, Poland and Slovakia in the broader EU facing legal action for ruinning deficits over an EU limit of three percent.

But although deficits are broadly coming down across Europe, many member states are failing to meet medium-term commitments to improve their public finances, the Commission said.

"Although the budgetary situation has improved remarkably in the last few years, it is quite clear that most member states need to improve their track record in implementing their budgetary targets," EU Economic Commissioner Joaquin Almunia said.

In a 2005 reform of the EU's fiscal rulebook, the Stability and Growth Pact, member states were given more leeway to overshoot the three percent limit during weak economic growth.

However, they were also required to meet targets aimed at improving public finances over the medium term when economic growth was strong and tax revenues flowing in.

The Commission, which polices public finances in the EU, said that unless member states changed their current course, only 10 of the 27 EU countries would reach their targets in 2008 despite three consecutive years of above-trend economic growth.

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