Paris vows action on deficit

Prime Minister Jean-Pierre Raffarin wants to kick-start the economy

France has pledged to get its public finances back in order by 2005, hoping to avoid an increasingly bitter row with the European Commission.

In its 2004 budget bill, the French government pledged to cut its public deficit next year to 3.6% of gross domestic product, and to get it under the EU's 3% ceiling by the following year.

But European Monetary Affairs Commissioner Pedro Solbes said the budget measures did not go far enough in addressing the problem.

France is trying to redeem its reputation in Brussels, where it has been one of the main offenders against the so-called Stability Pact, which aims to shore up confidence in the euro by imposing fiscal discipline.

Outlaws

If France's budget deficit exceeds 3% of GDP for three years in a row, it could be fined under the rules laid down under the Stability Pact.

DEFICIT FORECASTS 2003: 4% of GDP 2004: 3.6% 2005: 2.9% Source: French Government

France first breached the 3% limit last year, and has since come in for mounting criticism of its budgeting - especially since the present government opted to focus on cutting tax to stimulate the sluggish economy.

The new deficit forecasts assume that economic growth will accelerate from 0.5% this year to 1.7% in 2004 - an assumption that many economists say is optimistic.

For a while, it seemed that France was likely to lead a rebellion against the Pact, which many eurozone member states say is inappropriate to the current slow economy.

Germany, another persistent offender, has also grumbled - although less loudly - about being restricted by Brussels.

Deadline

Despite France's pledge to get its deficit under control, Brussels said that its budget plans did not go far enough.

"On the basis of the Finance Law presented today, French budget plans would not be in line with what was recommended by the Ecofin Council (of EU finance ministers)," Mr Solbes said in a statement.

"If no measures are announced before the expiry of the deadline of 3 October 2003, set by the Council in June, the Commission will, in line with the Treaty, activate the next steps of the excessive deficit procedure during the month of October."

Troubles at home

Pleasing Brussels as well as the French electorate will be difficult for Prime Minister Jean-Pierre Raffarin.

Mr Raffarin was elected last June on a right-of-centre reforming platform, and promised to kick start the French economy.

He has promised sweeping tax cuts, as well as reductions in France's generous welfare state and pension system.

But fiscal considerations have also forced him to raise some other taxes and duties, a U-turn that has led to a dramatic fall in his popularity.

And he has yet to deliver on his initial promise that income tax would be cut by one-third during his tenure.