France 'may bust euro law until 2007'

28th January 2004, Comments 0 comments

BRUSSELS, Jan 28 (AFP) - The European Commission returned to the attack on France's budget plans Wednesday, warning that the eurozone giant was now at risk of breaching an EU deficit ceiling for five years running.

BRUSSELS, Jan 28 (AFP) - The European Commission returned to the attack on France's budget plans Wednesday, warning that the eurozone giant was now at risk of breaching an EU deficit ceiling for five years running.

Unless Paris boosts efforts it is unlikely to get its public deficit below a eurozone ceiling - three percent of gross domestic product (GDP) - before 2007, two years later than promised by Paris, the EU executive said.

In an analysis of France's budget plans for 2003-2007, Brussels underlined that on current trends, "such a position will not be achieved before 2007".

France has promised to get its deficit down to 2.9 percent of GDP, just under the target set out in the EU's Stability and Growth Pact, by 2005.

But Brussels said the French government was relying on over-optimistic forecasts for economic growth to justify its deficit target.

"Given the seriousness of the French budgetary situation, the medium-term budgetary plans lack ambition," the report said.

And it noted that "targets set in previous updates of the (French) stability programme were missed by a large margin".

The report marks a renewal of hostilities by the Commission in a long-running row over violations of the stability pact by the eurozone's biggest economies.

A majority of EU member states last November refused to take disciplinary action urged by Brussels to bring France, along with fellow deficit laggard Germany, to heel.

The eurozone's two biggest economies are guaranteed to breach the deficit limit for three years running this year. If the Commission's analysis is correct, that could run to five years on the trot in the case of France.

On Wednesday the Commission carried out a threat of legal action over the finance ministers' decision of November by filing a complaint with the European Court of Justice in Luxembourg.

Now the ministers must take up the Commission's analysis of the French budget position at their next meeting on February 10.

Responding to the downbeat assessment from Brussels, French Budget Minister Alain Lambert said: "We will take all steps to respect our commitments."

But according to the Commission report, the French budget plans leave the 2005 target to rectify the deficit vulnerable to "any unfavourable development on the macroeconomic or on the budgetary side".

It also said that France's debt is forecast to remain above the stability pact's ceiling - 60 percent of GDP - until 2007, only starting to decline in 2006.

But Brussels did welcome controversial reforms being pushed through by the French government to the pensions system, which the report said would lighten the debt burden in the long run.

"After this reform, France is in a considerably better position to meet the budgetary costs of (an) ageing population," it said.

"The reform will indeed not only postpone the average retirement age and thus reduce pension expenditures but it will also probably lead to an increase in participation rates among older people with positive effects on potential growth."

© AFP

                                Subject: France news

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