France set to avoid censure over deficit

FRANCE looks set to get away with breaking the euro rules as EU finance ministers agreed to postpone a decision on the issue.

One of the EU's largest economies, France has refused to reduce its budget deficit and admits it will break the 3% barrier for three years in a row.

Under severe pressure from the European Commission, French Finance Minister Francis Mer yesterday outlined new measures to help reduce the deficit, mainly caused by tax cuts.

The Commission had insisted on a 1.5% cut in France's budget deficit next year.

However, it has adjusted its demand and is proposing a reduction of 1% next year and 0.5% the following year.

However, France is offering to reduce its deficit by just 0.7% in 2004 and 0.8% the following year.

Mr Mer outlined cuts they intend to make in social welfare, pensions and health spending to reduce the deficit and will discuss the details with the Commission in the next two weeks.

The Commission has proposed that the EU Finance Ministers take action against France but with pressure growing from the larger member states, they could well back off over the coming weeks.

They have already given France an additional year to bring their budgets into line with the Growth and Stability Pact designed to protect the economies of the eurozone countries.

A two-thirds majority is required to sanction France but Germany, which is also in breach of the 3% deficit rule, Luxembourg and possibly Italy seem prepared to block any move against France.

Rather than be humiliated in this way, the Commission is likely to agree to France's new measures, make some adjustments to the timetable for implementing cuts and seek an assurance that they will bring their deficit into line in 2005.

Economic and Monetary Affairs Commissioner Pedro Solbes described the French situation as "very encouraging".

A decision not to sanction France would infuriate the smaller countries mainly Austria, Finland and the Netherlands. They tried to have the matter put to a vote at the meeting of the 12 eurozone ministers on Monday night. However, it is likely the larger countries will get their way.