France to defy deficit limits

FRENCH Prime Minister Jean-Pierre Raffarin defied calls to bring the budget deficit below European limits, urging the rest of Europe to join France in steps to boost economic growth and employment.

France, the second largest of the 12 eurozone countries, will not be bound by European Commission pleas to cut spending or raise taxes immediately and may surpass the deficit limit until 2006, Raffarin said.

“The commission will do its job and the French government will do its job,’ Raffarin said, after meeting the commission’s president, Romano Prodi in Brussels. France’s “main duty” is to spur growth and employment, Raffarin said.

France, an opponent of the budget curbs since before the euro’s birth in 1999, is under pressure from smaller countries such as the Netherlands and Austria to pare the shortfall or face fines for breaking the rules.

France’s economy shrank in the second quarter and Germany, Italy and the Netherlands fell into recession, making it likely the European economy contracted for only the second time since the euro’s arrival.

France gained Germany, the architect of the “stability pact’ limits on public finance, as an ally in recent weeks when Chancellor Gerhard Schroeder announced tax cuts that may keep Germany over the deficit limit next year as well. No country has yet been fined for breaching the deficit limit of 3% of gross domestic product. Fines could go as high as 0.5% of GDP. Penalties would be imposed by EU finance ministers, under a voting system skewed toward larger countries.

The commission, which has the role of prosecutor in enforcing the rules, has stopped short of calling for fines. The next step for France and Germany would be a new set of recommendations on taxing and spending. Prodi pledged “maximum available flexibility’ in enforcing the rules.