Brussels has warned France that it faces EU action over looming budget deficits unless Paris announces new spending measures within seven days. The French government on Thursday confirmed that public debt will reach 3.6 per cent of GDP in 2004 - over the three per cent ceiling set by EU Stability and Growth Pact rules that under pin the euro. Pedro Solbes has told Paris that Brussels "will give its final opinion only after a full and thorough assessment of the budget figures". But setting an October 3 deadline the economic and monetary affairs commissioner warned France was out of line with targets set by Europe's finance ministers. "On the basis of the Finance Law presented today, French budget plans would not be in line with what was recommended by the Ecofin Council last June," he said.
Firing a shot across the bows of French President Jacques Chirac, Solbes reminded Paris that it could face penalties under the EU rules. "If no new measures are announced before the expiry of the deadline of 3 October 2003... the commission will activate the next steps of the excessive deficit procedure," he cautioned. Behind the scenes many believe that Chirac will be given a "special circumstances" escape clause triggered by Europe's economic slowdown and the need for structural reforms. The French president has defended his budget, insisting that Paris was taking action to cut deficits and to introduce, often controversial, reforms. "The reduction of our deficits has begun with determination - this is a duty towards Frenchmen and an obligation towards Europe," he said. If France is let off the hook by Brussels other EU member states will be dismayed - especially as Paris is to press ahead with a three per cent income tax cut. The Netherlands has called on the European Commission to fine both France and Germany for repeated breaches of the Stability and Growth Pact. And in an FT interview on Friday, Belgium's Prime Minister Guy Verhofstadt defends the EU budget rules, warning that a fiscal softening could unravel the discipline needed for the European single currency. He tells the newspaper that France should be set "a firm timetable... to get its finances in order and to comply".//www.eupolitix.com