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France defies eu rules Original Source Link: (May no longer be active)
http://www.expatica.com/france.asp?pad=278,313,&item_id=33901http://www.expatica.com/france.asp?pad=278,313,&item_id=33901
France reports deficit to defy EU rules
PARIS, Sept 1 (AFP) - France notified the European Union Monday that it will have a public deficit of four percent of gross domestic product, well in excess of a three-percent EU limit, the economy and finance ministry said.
France's public deficit already breached the three-percent limit laid out in the EU's 1997 Stability and Growth Pact in 2002 when it reached 3.1 percent of GDP.
The increase in the public deficit - coming at a time of general economic downturn across much of the euro-zone - puts France on a collision course with the European Commission over its spending policies and economic reform.
France's estimate for public deficit is the highest among EU countries, ahead of Germany, which notified the EU's executive last week it was likely to run a deficit of 3.8 percent this year.
The ministry blamed the deterioration on the economic slowdown, which has cut into tax revenues.
It said the government had preferred to let the deficit widen rather than take painful measures to rein in spending.
"The loss of public receipts due to the economic conditions was not compensated for in order not to worsen the economic situation," it said.
"The government made a balanced and responsible economic policy choice aiming to ease the effects of lower activity and employment," it added.
However, that is not what Brussels is likely to think as France was already in hot water with the European Commission, along with Germany, over its deficit for last year.
But France's centre-right government, which was elected last year on promises of tax cuts, has long been cold towards the rules of the EU's Stability and Growth Pact.
France says the pact must be respected but should be interpreted with "flexibility".
Germany's Social Democrat government has set in motion ambitious reforms to stimulate the economy and its finance minister, Hans Eichel, said on Sunday Berlin's deficit would fall below 3.0 percent next year.
But the reform plan includes big tax cuts which could reduce the revenue available to the government to reduce its deficit in the short term.
Last week European Commission President Romano Prodi, dismissing hints by some other senior euro-zone officials, insisted the rules of the Stability and Growth Pact should be fully enforced.
Some small countries in the euro-zone have made clear that they resent deeply what they see as France and Germany's cavalier attitude towards the rules.
They have made painful efforts to restructure their economies and control deficits, creating surpluses in some cases, and do not see why the EU's large economies should be allowed to flout the rules.
Under the rules of the pact, France and Germany could in theory eventually face hefty fines if they do not rein in their deficits.
But France's deficit looks set to widen further before it shrinks.
Economist Emmanual Ferry at French brokerage Exane has predicted that France's public deficit could swell to five percent of output next year.
© AFP
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