BRUSSELS, Nov 4 - France was set to win an extra breathing space at a European Union finance ministers' meeting on Tuesday to offer deficit-cutting measures despite pressure from some small countries for the EU to be tougher. French Finance Minister Francis Mer offered on Monday to do a bit more to trim his 2004 budget shortfall, set to breach EU limits for a third year in a row, pacifying all but three of its euro zone partners. Finance ministers of the euro zone agreed to postpone voting on the next steps in a budget disciplinary action under way against Paris until November 25, by which time they expect Mer to produce some details. But Dutch Finance Minister Gerrit Zalm complained on arrival for Tuesday's formal Ecofin meeting that Brussels was not demanding enough and France was not offering enough. Asked what extra measures he wanted to see from Paris, Zalm said: "A deficit below three per cent (of gross domestic product) next year." Austria, Finland and the Netherlands were the only countries to give a frosty reception to France's latest concession, which came as Germany sought legal loopholes that would turn the clock back in the disciplinary procedure against Paris and also avoid stricter Brussels supervision of its own fiscal policy.
"Mer confirmed the undertaking of France to come below three percent in 2005 and (take) additional measures for 2004," the chairman of the euro zone finance ministers' meeting, Italy's Giulio Tremonti, told a late night news conference. "The details of the additional measures would be provided in time for the Commission and Council to consider the measures before the next meeting," he added. Apart from the three critics, "the other countries felt they should give it a positive response", Tremonti said.
GERMANY TOO?
They will focus on granting France an extra year, until 2005, to bring its deficit below the EU limit in return for budget cuts, and may also find themselves dealing with Germany's deficit problems. Asked if the European Commission would have recommendations for Germany's budget ready by that meeting, European Monetary Affairs Commissioner Pedro Solbes said: "It's possible." Mer declined to comment on what France would come up with to head off the risk of fines, the ultimate sanction in the budget disciplinary process set out in the Stability and Growth Pact. His government cannot be seen to backtrack on tax cuts and is also in a bind because spending cuts could be seen as an austerity programme that smacked of the sort of policy reversals that toppled the previous conservative government in 1997. Still, it is making more conciliatory noises. A French source said Mer had promised to try to cut its structural deficit next year by somewhere between the 0.6 percentage point of GDP planned in the 2004 budget and the 1.0 percent reduction demanded by the Commission. Belgian Finance Minister Didier Reynders said France would have to come forward with clear measures and figures in three weeks' time, otherwise the EU would have to take action. His Swedish colleague, Bosse Ringholm, said Paris could easily take the measures needed to get its deficit below the EU ceiling, for example by delaying tax cuts, and failure to solve the issue would create difficulties for the whole of Europe. Germany had come to Monday's meeting armed with legal advice that said ministers could revert to an earlier stage of the process instead of escalating steps against repeat offenders, such as Berlin and Paris. Any such move would effectively draw the fangs of the already weakened pact which Germany insisted on before the 1999 launch of the euro to guard against other countries' profligacy.
German Finance Minister Hans Eichel said the aim was to avoid punishing countries that cooperate with the Commission. "We think that if there is a decision taken by consensus, i.e., taken with the partner that is cooperative and we are agreeing about what to do, then you don't need procedural steps that would spark a fight again," Eichel told reporters. "You need those procedures if a member state is not cooperative," he added. Berlin could benefit later from such an idea as it also faces censure from Brussels in the coming month for plans to exceed the deficit limit. But the Commission made clear it would not short-circuit the budget discipline process.//www.reuters.com