MILLIONS of pounds of European money to boost job creation and economic development in the North-East could be lost because earlier cash handouts have not been spent, it was claimed last night.

The region's Liberal Democrats blame "Government bureaucratic bungling" for the problem and have called for an explanation on how the situation has developed.

But the Government Office North East, which is one of the partners responsible for deciding which projects get cash, is confident spending targets for the end of the year will be met.

Lib Dem European spokeswoman Fiona Hall claimed £18m from a scheme called Objective 2 is at risk of being taken back by the European Union.

The money is designed to be used to create jobs, draw visitors to tourist attractions and support businesses in disadvantaged rural areas, fishing areas suffering employment loss and urban areas with industrial decline.

The North-East was given £448m as part of the six-year programme in 2000, and the expenditure target to this December will be approximately £100m.

The regional partnership, which was warned last year that if the money is not spent it will have to be returned, set up a task force to improve the flow of European projects.

David Slater, director, Business Group, Government Office North East, said last night: "Currently £192m of European funding has been requested. We believe that with this additional flow of projects, good management of the projects and some new funds we expect to develop in the next few months, we should be able to hit the target for the end of this year.

"However, there can be no place for complacency about this and we are taking a range of measures with European partners to improve procedures and also to look at ways of minimising any loss to the region."

Mrs Hall said: "Last year, Government Office North East promised to speed up the grant approval process, and some progress has been made. "However, we are now reaching the midway point of the 2000-2006 programme and if £100 million of grant funding has not been spent by the end of December, the EU will impose penalties equivalent to at least £18 million.

"The knock-on effects of this are potentially hugely significant. If the North East cannot spend this allocation of EU cash, it is highly unlikely that the EU will look favourably on requests for transitional funding after Objective 2 comes to an end in 2006."