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Comment & analysis / Comment Print article | Email
France faces rebuke over budget deficit
By George Parker in Luxembourg and Francesco Guerrera in Brussels
Published: October 8 2002 20:43 | Last Updated: October 8 2002 20:43

France was on Tuesday left isolated and facing a European Union reprimand after blowing a hole in the credibility of the rules that underpin the euro.

The row came as Wim Duisenberg, president of the European Central Bank, attacked France, Germany and Italy for their failure to put their finances in order and rejected calls for an interest rate cut to kickstart the European economy.

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Francis Mer, French finance minister, found himself outvoted 11 to one by other eurozone finance ministers in the early hours on Tuesday after refusing to honour commitments to cut France's budget deficit. Now France faces the possibility of a formal rebuke from the EU and a demand that it amends its 2003 budget, which includes plans for tax cuts and increased spending.

The issue is the latest crisis for the EU's stability and growth pact - the strict rules designed to impose budgetary discipline on the 12 eurozone governments.

Hans Hoogervorst, Dutch finance minister, said: "This is very serious and there will be consequences."

Karl-Heinz Grasser, Austrian finance minister, said: "This is French provocation." He said he expected Brussels to issue a formal reprimand to France in the next few months, and that he believed this would be endorsed by finance ministers.

The issue came to a head in a meeting of the eurogroup, the private gathering of the eurozone finance ministers, which ended in acrimony at 1am on Tuesday. Mr Mer refused to agree to cut the French budget by 0.5 per cent in 2003, as demanded by his colleagues - a breakdown of the principle of peer pressure that is supposed to maintain discipline.

Commission officials said the rebuke could come as early as next month. They said the decision to isolate France showed that peer pressure was working with member states prepared to act against each other.

Separately, Mr Duisenberg blamed the uncertainty over a recovery in the eurozone on the reluctance of France, Germany and Italy to raise taxes and cut wages while their economies were in good shape.

"Three of the larger countries have not used the time when there were good economic conditions . . . to consolidate their budgets. Now they bear the burden of it," Mr Duisenberg said in its quarterly testimony to the European Parliament.

France, like other EU countries, had agreed to balance its budget in the medium term to ensure the euro was not undermined by excessive borrowing. But France, Germany, Italy and Portugal are still running deficits and have been given an extra two years - until 2006 - to balance their budgets.

The European Commission, which polices the stability pact, is particularly concerned about France. While the other three countries are taking measures to cut their deficits, Paris is honouring pledges to cut taxes made by President Jacques Chirac, and has said growth is its priority. 

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