Economic embarrassment for EU powerhouses

France was tonight ordered by the rest of the EU to get its economy in order - or risk the credibility of the single currency.

The humiliation was too much at talks in Brussels as France became the latest country to fall foul of strict rules governing the running of the euro.

French finance minister Francis Mer defiantly rejected attacks on his nation’s economic performance, but was humiliatingly out-voted 14-1 by his EU counterparts.

They issued an official “early warning” against France, with the embarrassment coming at the same meeting which saw Germany accept that it, too, must improve its economic performance.

German finance minister Hans Eichel accepted with good grace an official “reprimand” – one step more serious than an early warning – and vowed to reform Germany’s labour markets to reduce his budget deficit.

Germany’s budget deficit is running at 3.75% of national wealth, well above the maximum 3% permitted by the EU’s Stability and Growth Pacts which sets the economic rules for the dozen countries which have adopted the euro.

The French budget deficit is currently within the ceiling at 2.6% and Mr Mer firmly dismissed the EU’s economic assessment that it will soon break through the magic 3% limit.

The French complacency triggered some angry words from EU budget commissioner Pedro Solbes who told today’s meeting: “France cannot ignore the fact that we all share certain obligations as part of the adoption of the euro.

“France has to make its own contribution to maintaining and increasing confidence in the euro – otherwise we will have a credibility problem.”

The Commission has warned Germany, meanwhile, that its budget difficulties are not caused by “unusual” events beyond Germany’s control, nor by a severe domestic downturn – and certainly not by the euro.

The official verdict is that the German government underestimates the impact of corporate tax reforms and it has also been over-spending, particularly on the healthcare system.

Whatever the reasons, Chancellor Gerhard Schroeder is facing rising unemployment and widespread threats of public sector strikes.

Ironically it was Germany, the EU’s economic powerhouse, which insisted on the stability and growth pact to force less disciplined national economies to run sound policies to keep the single currency strong.