Sarkozy in the hotseat on budget deficit

5th July 2007, Comments 0 comments

PARIS, July 5, 2007 (AFP) - French President Nicolas Sarkozy will be in the hotseat next week in Brussels where his plans to slow French momentum toward a balanced budget have unsettled some European partners.

PARIS, July 5, 2007 (AFP) - French President Nicolas Sarkozy will be in the hotseat next week in Brussels where his plans to slow French momentum toward a balanced budget have unsettled some European partners.

Germany, which like France is a member of the 13-nation eurozone, is likewise uneasy with Sarkozy's insistence that national governments be given a greater say in economic policy as a counterweight to the European Central Bank.

In an unusual move, the newly-elected French leader is to attend a meeting in Brussels Monday of eurozone finance ministers to outline his controversial budget policy.

While members of the eurozone pledged in April to balance their government budgets by 2010, French Prime Minister Francois Fillon on Tuesday said France would not achieve that goal until 2012.

His government also said it now foresaw a public deficit, which covers national and regional administrations as well as the social welfare account, of 2.5 percent of gross domestic product in 2007 and 2008.

France's previous administration under President Jacques Chirac pledged to slash the public deficit to 1.8 percent by next year.

But Sarkozy's masterplan for reviving the French economy is based on corporate and personal tax cuts, along with lower company social charges, that are expected to cost the government as much as 13 billion euros (17.8 billion dollars) a year starting in 2009.

French officials have argued that the 1997 Stability and Growth Pact, which sets economic performance standards for eurozone members, does allow for a degree of flexibility when governments undertake reforms designed to boost growth.

The pact, among other stipulations, holds that eurozone governments should keep annual public deficits to no more than 3.0 percent or less of gross domestic product.

But governments are also expected to work towards a balance or even surplus in times of economic growth.

German Finance Minister Peer Steinbrueck, who has described Sarkozy's planned attendance at Monday's finance meeting as "interesting and unusual," has said he will listen to the French president's arguments.

But he warned that "there would be a problem" if Paris sought to evade its eurozone policy obligations.

Amelia Torres, spokeswoman for the European economic and monetary affairs commission, stressed that the eurozone "had to take advantage of growth to move toward balanced budgets with a reduction in the deficit of at least 0.5 percent of GDP a year."

Sarkozy is also expected Monday to argue for a stronger policy voice for eurozone finance ministers, notably to offset the influence of the European Central Bank on exchange rate movements.

Sarkozy and other eurozone political leaders have in the past complained that the ECB's monetary policies underpin a strong euro and thereby dampen export performance and threaten growth.

"It is right that ... the eurozone acquire a political identity," Jean-Pierre Jouyet, French secretary of state for European affairs, told the newspaper La Tribune.

He maintained that eurozone finance ministers, who are known collectively as the Eurogroup, should enjoy greater "visibility" and that their president should be given wider powers.

The group in addition should engage in a more intensive dialogue with the ECB "on the way in which monetary and budgetary policies are drafted" in order to ensure "the greatest possible growth."

Sarkozy during his presidential campaign scolded the ECB on grounds that it was excessively concerned about the fight against inflation while paying little heed to purchasing power and European industrial competitiveness, which he said had been harmed by an appreciating euro.

But Germany, its flourishing export performance unaffected by the strong single currency, remains firmly committed to preserving the ECB's traditional independence from political interference.

Copyright AFP

Subject: French news

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