Monday, 13 October 2003

EC Launches Excessive Deficit Procedure Against France

Despite an apparent rapprochement between the French government and the European Commission on the French budget following a meeting between Finance Minister Francois Mer and Economics Commissioner Pedro Solbes on Monday, the Commission has decided to call France’s bluff by commencing an excessive deficit procedure in defence of the Growth and Stability Pact.

In a statement issued on Wednesday, the Commission revealed that it has recommended to the European Council that France has taken “no effective action” in response to a previous recommendation in June this year that measures be implemented by the government to rein in its budget deficit.

The announcement came two days after an apparent thaw in relations between the EU and France, after Solbes concluded that the French budget was a “a step forward and better than expected” following discussion with Mer on Monday.

Nevertheless, by France’s own admission, its budget deficit will be at least 3.5% of GDP next year (the third successive year it has breached the mandatory 3% ceiling) provided, that is, the government’s 1.7% growth forecast is met.

Whilst Mer pointed out that the budget contains a number of revenue raising measures such as tax increases on fuel, cigarettes and alcohol, it is predominantly a tax cutting budget with a further 3% being trimmed off income tax, following last year’s 6% cut.

Ulrika Lomas

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