Europe singles out France over swollen deficits

10th November 2009, Comments 0 comments

The European Commission is on a collision course with France, with a major row brewing over when Paris will have to rein in spending.

BRUSSELS - The commission will on Wednesday order France to shoehorn its bloated public deficit back to within three percent of gross domestic product by 2013, one year earlier than Paris wants.

Under European Union regulations, member states are bound to hold their annual public deficits to three percent of output.

France, told in April it had until 2012 to put its house in order, is one of four EU states to be given one-year extensions because of a "deterioration in the economy."

But Britain is to be given until 2015 to fix its annual budget, with Ireland allowed until 2014.

Spain and Germany, a newcomer to the club, will also be given until 2013 to comply.

The 2013 French deadline puts Prime Minister Francois Fillon in a pickle, after he said last week that EU rules -- bent out of recognition during the financial crisis -- would be applied once again nationally in 2014.

The government had anticipated bringing its public deficit down from the record 8.5 percent of GDP expected next year to five percent in 2013.

"France cannot agree" with the commission's new demands, one EU official said.

The French central government deficit, one part of the overall shortfall, stood at 125.8 billion euros (187 billion dollars) on September 30 from 56.6 billion euros at the end of September last year.

French Finance Minister Christine Lagarde has already warned against launching an over-ambitious national loan for strategic investment, announced by President Nicolas Sarkozy in June.

Speaking late Monday, Lagarde said the deficit issue had not yet reached a "conclusion" with the commission.

She said France has "constantly delivered" since the EU's excessive deficit procedure was triggered in April, and added: "We'll know more on Wednesday."

The commission's proposals have still to get past EU finance ministers, but its zeal on the issue stems from figures issued last week showing that eurozone public deficits were set to triple this year to 6.4 percent of GDP, and almost 7.0 percent in 2010.

Twenty of the 27 EU nations have so far been warned for breaching guidelines designed to promote stability and growth across intertwined economies.

A gradual recovery taking hold increases political pressure on EU member states to reduce deficits that soared as governments borrowed massively to fund stimulus measures.

However, high unemployment allows governments to argue against cutting back spending for fear of jeopardising jobs and renewed growth.

European Commissioner for economic and monetary affairs Joaquin Almunia said late Monday that he would "finalise" his demands based on "fair" treatment for all EU members.

Only seven EU members -- Bulgaria, Cyprus, Denmark, Estonia, Finland, Luxembourg and Sweden -- have respected the three percent limit.

Greece is already under intense fire over its deficit, and plans to reduce its public deficit from an expected 12.7 percent of output this year to 9.4 percent next year.

Member states have formally agreed to start beating a retreat on unsustainable housekeeping by 2011 at the latest, ongoing recovery permitting.

However, agreement on when to pull out state guarantees for banks is proving much tougher to nail down.

A French diplomat said on Monday that a unilateral planned deadline of 2010 should be followed by all EU countries, otherwise there will be "distortions" to competition for credit.

But both the Dutch and the Swedish finance ministers batted away that request ahead of talks on the issue over breakfast on Tuesday.


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