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Last Updated: Wednesday, 27 August, 2003, 18:41 GMT 19:41 UK
Flexibility call on euro budget pact
French Prime Minister Jean-Pierre Raffarin
Mr Raffarin wants to boost growth
French Prime Minister Jean-Pierre Raffarin has called for greater flexibility in the way the eurozone's budgetary rules are applied.

His comments follow reports that France's budget deficit is set to exceed the permitted limit of 3% of gross domestic product (GDP) for the third year in a row in 2004.

If the deficit does stay above the 3% level for a third year France could face fines for breaking the eurozone's Stability and Growth Pact.

But following a meeting with the European Commission in Brussels, Mr Raffarin said his priorities lay with boosting growth in the French economy.

Budget discipline

"My primary responsibility is to do everything to increase growth and improve employment," he said.

"We are fully aware of the advantages of being in the eurozone and we think that the necessary budget discipline... should be applied by all."

I underlined that we have no choice but to apply the rules of the treaty
Romano Prodi, European Commission president
But he added: "This doesn't mean that you can't have some sort of flexibility."

France's spending deficit reached 3.1% last year, is expected to reach 3.7% this year and a report in French newspaper Les Echos said it would remain above 3% next year.

Meanwhile the French economy is struggling to avoid falling into recession, after it contracted by 0.3% in the second quarter.

Attempts to boost the economy through tax cuts or higher spending run the risk of making the government deficit even worse.

Earlier this year, French President Jacques Chirac called for the stability pact's terms to be eased.

Commitment needed

But following his meeting with Mr Raffarin, European Commission president Romano Prodi said he would have to act if the deficit was not cut.

"I underlined that we have no choice but to apply the rules of the treaty, this will have to be done," he said.

"Member states have to show commitment to these common rules."

However, he added the European Commission would use "maximum available flexibility" when applying the rules.

Germany backs flexibility

France is not the only eurozone member in danger of breaching the stability pact rules.

Germany has also run government deficits in excess of 3% of GDP and in an interview with an Italian newspaper German Chancellor Gerhard Schroeder also called for greater flexibility in applying the rules.

"I am in favour of more flexibility in the application of the (Stability and Growth) Pact," he told Italy's La Repubblica newspaper.

"There are phases when stability is the first priority and phases, such as the one we are now in, in which one certainly doesn't ignore stability, but there is a strong emphasis on growth.

"I think that it is possible and necessary to underline the growth objective with a reasonable interpretation of the Stability Pact."


SEE ALSO:
French economy in trouble
20 Aug 03  |  Business
Slack EU economy 'must reform'
31 Jul 03  |  Business
Europe warns on growth targets
06 Jul 03  |  Business



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