France hopes to calm budget fears

Mr Raffarin has ambitious tax-cuts to finance

France's new right-of-centre government has accused its predecessor of leaving state finances in disarray, but has promised to balance the budget by 2004 nonetheless.

According to Finance Minister Francis Mer, the French public deficit could be up to 2.6% of gross domestic product (GDP) this year, against the 1.8-1.9% forecast by the previous government, ousted in elections earlier this month.

The new government, headed by Jean-Pierre Raffarin and politically allied to President Jacques Chirac, has pledged to cut taxes, without dramatically reining in public spending.

France's European neighbours are keenly interested in its state finances, since it is coming close to breaching agreed rules on budgetary discipline - a key foundation underpinning faith in the euro.

At a European summit in Seville in mid-June, France was given a little leeway in its budget strictures, a recognition that political considerations were taking priority this year.

Still on track

Keen to establish a reputation for fiscal probity, Mr Mer rushed to stress that targets would still be hit.

He said that accelerating GDP growth should help balance the budget.

The French economy has been more robust than the EU average over the difficult past six months, and has avoided slipping into recession.

The government is counting on the economy growing by at least 3% this year and next.

If growth does not materialise, and France fails to balance its budget, Brussels has a range of theoretical sanctions to force it into line.

Germany and Portugal came close to being punished by Brussels earlier in the year, but were let off at the last minute.