French deficit could hit eurozone

The eurozone’s overall budget deficit in 2003 could break the fiscal rules underpinning the currency because of a larger-than-expected French deficit, the European Commission said today.

Commission spokesman Gerassimos Thomas said the French government announcement that its budget deficit will hit 4% of gross domestic product this year, may push the euro-zone as a whole above the 3% limit.

“Given the fact that France seems to have gone off the rails a bit in 2003, the euro-zone deficit will be around 3%, if not exceeding 3%,” Thomas said.

With Germany due to hit 3.8% this year, the euro-zone’s two biggest economies will be well over the target.

In recent months France and Germany have called for a more flexible interpretation of the stability and growth pact, a 1997 accord that determined the fiscal rules to underpin the euro.

The pact includes potential sanctions against a country whose deficit repeatedly runs above 3% of GDP.

Germany and France exceeded the deficit limit last year. The two countries, who together largely crafted the fiscal rules, are pushing ahead with tax-relief packages that most economists believe will put them over the 3% limit in 2004 as well.

Thomas said France’s admission of a 4% budget deficit in 2003 “indicates that Paris had not intensified its budget consolidation measures.”

French Budget Minister Alain Lambert said today that France “is committed” to the EU budget rules but “our first obligation is to pursue growth and employment.”