EU orders France to sort out economy - fast

France was ordered to get its economy in order “as rapidly as possible” today to rectify a budget deficit which breaches the rules governing the single currency.

The humiliating demand from the European Commission amounts to an early warning that unless the French government cuts spending or raises taxes it faces hefty fines under the terms of the so-called Stability and Growth Pact agreed by all countries joining the eurozone.

The UK would be subject to the same strictures if it joined the euro, and today’s Commission pressure on France will be seized on by British eurosceptics who claim adopting the single currency would effectively hand control of Britain's Treasury to Brussels.

Germany has also been warned to improve its economic performance and has promised to reform the country’s labour markets to reduce the German budget deficit.

Today the Commission “recommended” that France resolve its budget problem by 2004 “at the latest“.

The problem is that the French budget deficit is running at 3.1% of national wealth – just outside the 3% ceiling permitted under the terms of the Pact.

The Commission says it looks as if the problem will get worse, with the deficit reaching 3.7% this year.

EU monetary affairs Commissioner Pedro Solbes says France has until October 2 this year to take the “necessary measures” to improve its budget position with a view to the budget deficit declining by the start of next year.

Earlier this year the Commission accused France of risking the credibility of the single currency by letting its deficit grow. And only this Monday, anticipating today’s rap over the knuckles from the Commission, French Prime Minister Jean-Pierre Raffarin announced a freeze on public spending next year.

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 deficit and debt policies to keep the single currency strong.

Now, embarrassingly, both Germany and France have fallen foul of the rules – a double whammy which hands British eurosceptics fresh ammunition in their opposition to a one-size-fits-all economic strategy steered by Brussels.