EU raps France over budget deficit

Business News

May 28, 2008, 15:51 GMT

Brussels - The European Union on Wednesday warned France that it is not doing enough to reduce its budget deficit in line with EU agreements, in an embarrassing rebuke to the French government and President Nicolas Sarkozy. France made 'no improvement' in its budget balance in 2007 and is only expected to make 'very limited' progress in 2008-09, the EU's executive, the European Commission, said in a press release. According to the commission's latest economic forecasts, France's budget deficit will reach 3.0 per cent of GDP, the highest level allowed to euro users, in 2009, having risen to 2.9 per cent in 2008 and to a higher-than-anticipated 2.7 per cent in 2007. Sarkozy has already said the country will not eliminate its budget deficit before 2012 - despite earlier pledging to do so by 2010. The commission therefore 'recommends that France carry out the necessary consolidation of public finances to support (the) process of structural reform,' the press release said. The publication of the so-called 'early policy advice' is seen in Brussels as a stinging rebuke to Paris, which is set to take over the rotating presidency of the EU on July 1. It is also a blow to France's embattled president, a former finance minister who is currently trying to push through unpopular reforms to the country's economy and labour market. Those reforms, although still at an early stage, 'are welcome and could ultimately boost potential growth,' the commission said. But 'reforms and budgetary consolidation go hand in hand,' and France should therefore reform its public spending policies, including its pension and health-care systems, the commission said. The 15 countries which currently use the euro have all joined the Stability and Growth Pact, which binds them to keeping their budget deficit to a maximum of 3 per cent of GDP. If they look likely to breach that limit the commission can send them an 'early warning,' and can if necessary take them to court to enforce compliance. The system of the 'early policy advice,' a milder form of warning, was introduced in 2005. This is the first time it has been used.

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