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Business

EU delays Action on French Budget Deficit

France avoided disciplinary action over its budget deficit on Monday, as EU finance ministers postponed imposing penalties for breaching the stability pact. But a German proposal to soften deficit rules was rejected.

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French Finance Minister Francis Mer has until the end of the month to present a deficit plan.

Already reprimanded last month for flaunting the deficit rules designed to protect the stability of the euro, Paris on Monday gave assurances France would get its budget deficit back under the three percent of gross domestic output by 2005.

French Finance Minister Francis Mer told his counterparts from the other 11 euro zone members that Paris would outline further steps at a meeting later this month, which was enough for all but three of euro zone countries to back postponing the next step in the disciplinary process.

“France has three weeks time to make progress, not just with commitments, but with clear measures and figures,” Belgian Finance Minister told reporters in Brussels on Tuesday. “If that isn’t possible, we’ll continue the process.”

Under the terms of the single currency’s Growth and Stability Pact, France could be fined up to three billion euros for breaching the three percent deficit limit. Like France, Germany has also had a deficit over three percent for 2002 and 2003. The euro zone’s two largest economies are struggling with their budgets as sluggish growth has hit the public coffers hard.

But other European Union countries have little sympathy for the economic woes of Paris and Berlin, especially since both appear on track to remain above the limit next year as well. That has angered some smaller nations such as the Netherlands, Austria and Finland, which are all models of budgetary restraint and consolidation.

German plan rejected

Those three smaller EU members refused to back the decision giving France more time before moving ahead with the EU disciplinary measure, but they were overruled by the majority of the other states. However, a German proposal to effectively turn back the clock and give the EU’s deficit-challenged more time was soundly rejected.

Der alte neue Finanzminister

German Finance Minister Hans Eichel in the red.

German Finance Minister Hans Eichel said it would be possible for euro members to revert disciplinary procedures to an earlier stage if a troublemaker cooperated with the European Commission on its deficit.

“We think that if there is a decision taken by consensus, taken with the partner that is cooperative and we agree about what to do, then you don't need procedural steps

that would spark a fight again,” Eichel told reporters, according to the Reuters news agency. “You need those procedures if a member state is not cooperative.” As frustrating as it is for smaller countries with tidy budgets, the Franco-German teamwork on stymieing a tougher line on the stability pact is hardly surprising. Eichel is more than aware that although the European Commission’s critical gaze has been fixed on France of late, it could easily turn to Germany next year if the economy fails to grow as expected and Berlin is forced to borrow more.

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