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Last Updated:  Monday, 17 March, 2003, 11:24 GMT
France halves growth target
French Prime Minister Jean-Pierre Raffarin
We're not up in arms against Brussels, but I do think we should find a new definition of public deficits
Jean-Pierre Raffarin
French prime minister
France's economy will grow at barely half the pace previously predicted this year thanks to the global downturn and the effect of impending war, the country's prime minister has admitted.

In an interview with French business daily Les Echos, Jean-Pierre Raffarin said the government saw expansion of 1.3% rather than the 2.5% predicted in the budget six months ago.

It had considered a 1.5% prediction, but decided to err on the side of caution because the effect of war in Iraq, and of the increasingly volatile exchange rate of the euro, he said.

He also called for the European Central Bank to cut interest rates further, after its cautious quarter-point cut last month.

And he warned that the rolling tax cuts the centre-right government promised when it won last year's election might have to wait till economic growth returned to 2.5%.

Over the top

The interview with Mr Raffarin was published just hours ahead of a planned review of this year's financial outlook by the Finance Minister, Francis Mer, before an audience of independent economists.

High on the agenda will be France's budget deficit, which Mr Raffarin confirmed is heading for 3.4% of national output for 2003 - well above the 3% ceiling agreed in the European Union's controversial Growth and Stability Pact.

France has now become the third country, after Germany and Portugal, to break the rules, forcing the European Commision to begin disciplinary action which could lead to a fine.

The deficit limit was one of the criteria which the members of the single currency bloc had to meet to join the euro and was designed to protect monetary union.

And Mr Raffarin was in no doubt that the rules, rather than his government, is at fault, saying that raising taxes to bridge its deficit in the midst of flagging consumer sentiment and weak exports would be unwise.

"We're not up in arms against Brussels, but I do think we should find a new definition of public deficits," he told the paper, citing research and defence spending as areas which should properly be left out of the Pact calculations.

Sold off

France's stubbornly high levels of unemployment will also be a priority at the meeting, as Mr Raffarin acknowledged.

"We know that 2003 will be a difficult year," he said.

Still, the government will get back to selling state assets such as its stake in Air France "as soon as an economic window opens up", Mr Raffarin said.

The Air France dossier "is progressing well", he said.

But the sell-off of Electricite de France (EdF) - which, although still state-controlled, has taken maximum advantage of deregulation elsewhere in Europe to enter other markets - will have to wait till next year.

France freezes tax cuts
07 Mar 03 |  Business
France busts deficit limit
06 Mar 03 |  Business
France cuts economic growth target
21 Feb 03 |  Business
US economy hits the brakes
18 Feb 03 |  Business

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