BRUSSELS, April 2 - France broke European Union budget deficit limits in 2002 and looks set to stay above this three percent of gross domestic product cap this year and next, the European Commission said on Wednesday. As part of a disciplinary procedure launched against the euro zone's second biggest economy, the Commission adopted a report which said overruns in government spending and tax cuts were among the key factors to blame for budget slippage in 2002. France risks incuring the fines which are the ultimate sanction in the so-called excessive deficit procedure if the Commission deficit forecasts prove accurate and if it cannot offer the excuse of exceptional circumstance or sharp recession.
"Expected developments for 2003 show that the breach of the three percent threshold is not of a temporary nature," the Commission, which is responsible for enforcing budget, said in a report. "Roughly two-thirds of the deterioration in the budgetary position of France in 2002 are due to an increase in the cyclically adjusted deficit, the remaining proportion reflecting the impact of the weakness in economic activity," it added in a press release. The French deficit hit 3.1 percent of GDP in 2002, topping the limit in the Stability and Growth Pact that was designed to prevent national budget slippage from endangering monetary union. The EU executive said provisional forecasts, which are due to be presented when it updates its forecasts next week, see the French deficit rising to 3.7 percent of GDP in 2003 and coming in at 3.6 percent of GDP in 2004.
"Until now, no new measures have been taken by the French authorities in order to reduce significantly the general government deficit in 2003," the Commission said. It said the increase in the French deficit in the last few years could not be explained by an increase in the government investment to GDP ratio, which had remained roughly unchanged in the past five years.//