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Thursday, 26 September, 2002, 16:38 GMT 17:38 UK
Brussels criticises French budget
Finance Minister Francis Mer (left) and Budget Minister Alain Lambert
France's money ministers are sailing close to the wind
France's latest tax and spending plans have been criticised by the European Commission for threatening agreed budgetary limits.

On Wednesday the French government proposed a budget bill including a 1% cut in income tax and increased spending on the police and military.

But the Economic and Monetary Affairs Commissioner Pedro Solbes said that France's planned budgetary deficit of 2.6% of economic output for 2003 was "dangerously close" to the 3% limit set for euro members.

He added that the Commission was "worried" by the French targets, saying it was concerned that the government may not be able to balance its budget by the new deadline of 2006.

Earlier this week the Commission relaxed the previous budget balancing deadline of 2004 for France, Italy, Germany and Portugal.

In the red

When the euro was launched, participating countries agreed to balance their public finances in the medium term.

But the economic slowdown has made it harder for countries to match spending and income, as tax receipts fall.

The Commission's extension of the budget-balancing deadline was granted on the condition that countries tackled their structural budget deficit - which strips out the effects of changes to tax receipts and welfare spending through the economic cycle.

But Mr Solbes said he was concerned that the French plans would fail to do this.

"At first sight we are worried by the budgetary targets announced by the French government yesterday," Mr Solbes said.

"The first source of concern is the lack of clear improvement in the cyclically-adjusted budget deficit position that shows clearly that the French government is postponing its fiscal consolidation process."

Deficit persists

Mr Solbes added that France may even miss its new deadline for balancing the books.

"The second source of preoccupation is that a balanced budget position will not be reached by 2006," he said.

On Wednesday the French Finance Minister Francis Mer said France could post a budget deficit equivalent to 0.5% of economic output in 2006 in the economy grew at a rate of 3% a year.

But if the economy expanded by 2.5% a year, more in line with France's long-term record, the deficit would hit 1%.

See also:

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