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Last Updated: Friday, 3 October, 2003, 23:01 GMT 00:01 UK
France misses deficit deadline
Jean-Pierre Raffarin
Raffarin is struggling to come to grips with the deficit
France is on a collision course with the European Union over its refusal to comply with budget rules governing the 12 nation eurozone.

The country had until midnight on Friday to tell its EU partners how it intended to curb its ballooning deficit if it wants to avoid the threat of hefty fines.

But as the deadline passed, France showed little sign of complying with the EU's demands.

The European Commission (EC) is not likely to take action immediately - but it will be under pressure from other member states to force France back into line.

'Get-out clause'

The EC made clear this week that the budget recently unveiled by France did not comply with EU demands that its deficit come in below 3% of Gross Domestic Product (GDP).

DEFICIT FORECASTS
2003: 4% of GDP
2004: 3.6%
2005: 2.9%
Source: French Government
The EU executive is expected to draw up detailed budget recommendations for France - the toughest sanction ever attempted against a country - in an effort to safeguard the euro.

But sources quoted by Reuters say France believes its deficit is justified by its economic circumstances.

EU diplomats say France could try to use a get-out clause that invokes "special conditions" - although these conditions have yet to be defined by the EC.

'Negative consequences'

European Finance Ministers will not be asked to endorse any budget clampdown imposed on France by the EU until November.

Demanding a bigger effort from France will only have negative consequences for the French and European economy
Francis Mer, France's Finance Minister
But French Finance Minister Francis Mer plans to plead his case at a informal eurozone finance ministers meeting in Luxembourg on Monday.

"I have a meeting with the Eurogroup (of euro zone finance ministers) on Monday evening and I will see how our partners are reacting, bearing in mind that I will seek to convince them of our progress in the right direction," Mr Mer said this week.

But, he added: "Demanding a bigger effort from France will only have negative consequences for the French and European economy."

'Provocation'

Smaller member states have ridiculed French assertions that the economic slowdown amounts to an exceptional circumstance.

Austrian Finance Minister Karl-Heinz Grasser made clear the depth of feeling among countries who are complying with the 3% limit in an interview with the Financial Times.

"What France is doing is simply a provocation towards all the other eurozone countries," he said.

European Commission action was "absolutely certain", he told the paper.

France has blamed its inability to reduce its budget deficit next year on the cost of the 35-hour working week, brought in under the previous socialist government.

Economics minister Alain Lambert said the country would do its best to meet the European Commission's requirements - as long as those measures did not plunge France into a recession.

But, he added, the government's hands were tied by its commitment to implement the 35-hour week - which entails extra costs.

"If we had not been committed to this expense, he said, we would be well under 3% of public deficit," he said.

Mr Lambert ruled out any chance of achieving this in 2004.

"The Commission cannot believe that it is possible," he said.

Promises

The French economy has been growing far more slowly than anticipated this year, at 0.5% or less, while unemployment is high and rising, at nearly 10%.

The BBC's Caroline Wyatt, in Paris, said it was hard to see how France could reduce its deficit without taking decisions which would make the government even more unpopular at home.

But unless it does, it will find it impossible to avoid becoming the first member of the eurozone to face EU sanctions.

France told the European Commission last month its budget deficit would be 4% this year, and 3.6% in 2004.

The government of French Prime Minister Jean-Pierre Raffarin has pledged to get the deficit under 3% by 2005.

But European Monetary Affairs Commissioner Pedro Solbes has called on Paris to do more to address the problem.




SEE ALSO:
Most countries 'flouting EU rules'
11 Sep 03  |  Business
Germany drafts 'risky' budget
09 Sep 03  |  Business
French PM pledges tax cuts
03 Sep 03  |  Business
France admits huge deficit breach
01 Sep 03  |  Business
Chirac seeks softer budget rules
14 Jul 03  |  Business
EU acts on French deficit
02 Apr 03  |  Business


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