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Last Updated: Tuesday, 21 October, 2003, 16:36 GMT 17:36 UK
France escapes deficit fine
Francis Mer
Economy Minister Francis Mer has pledged to curb public debt
The European Commission has decided not to impose sanctions against France, even though it will be in breach of the EU's strict financial rules for the third year in a row.

The Commission has given France another year - until 2005 - to bring its budget deficit below the permitted level of 3% of Gross Domestic Product (GDP).

Paris will have to make cuts in government spending and report every six months to explain how it is bringing its deficit under control.

Some smaller countries had asked the Commission to levy big fines on France.

If the recommendation is not satisfactorily heeded, we can call for sanctions
Pedro Solbes, EU Monetary Affairs Commissioner

They are upset that France, and also Germany, appear to be ignoring EU rules with impunity while they - the smaller nations - were obliged to introduce painful cuts in public spending in order to meet them.

But EU Monetary Affairs Commissioner Pedro Solbes has insisted that the "spirit of the pact" was being kept.

"If the recommendation is not satisfactorily heeded, we can call for sanctions.

"The process will go on if necessary," he told correspondents.

Little political will

The Commission has recommended Paris make bigger cuts than already planned for 2004, especially in the health sector, to reduce the deficit by another 0.4% of GDP.

Mr Solbes said past violators of EU spending rules - Portugal and Germany - have managed to make the same level of cuts.

DEFICIT FORECASTS
2003: 4% of GDP
2004: 3.6%
2005: 2.9%
Source: French Government
If EU finance ministers accept the recommendation on 4 November - as expected - France would have two months to demonstrate compliance or the threat of fines could re-emerge.

However, there is little political will to crack down on France at a time when the overall economy is weak.

Paris insists that encouraging economic recovery must take precedence to deficit reduction.

Germany flailing

Germany is also expecting to go over-budget again next year but Berlin has adopted a less confrontational approach to avoid financial sanctions.

Six leading economic forecasting institutes in Germany have predicted that its economy will grow moderately next year, after three years of stagnation.

But they gave their most pessimistic estimate yet of economic performance for this year, saying there would be no growth at all.

The institutes said unemployment - which currently stands and more than 10% - would continue to rise.




SEE ALSO:
France scolded over budget deficit
08 Oct 03  |  Business
France misses deficit deadline
03 Oct 03  |  Business
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


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