PARIS, 3 September 2003 — France, on a collision course with the European Union, said yesterday it put its policies for growth and jobs before euro-zone spending rules. But Budget Minister Alain Lambert said France believed in the EU’s Stability and Growth Pact and would reduce its underlying public deficit next year.
France “will respect the commitment to improve the structural balance” of the public deficit in 2004, but “our first duty is to get back to growth and employment,” he said. The volume of spending next year would be “stabilized”, he told a conference sponsored by the HSBC CCF bank.
His remarks seemed to fall short of what is expected by the European Commission, which has demanded an overall plan by Oct. 3 to reduce the French public deficit to less than 3.0 percent of output next year or risk a heavy fine.
On Monday, France told the commission its public deficit this year would total four percent of output, far exceeding the ceiling.
The pact, intended to establish sound finances to favor long-term growth, requires euro-zone countries to move toward a surplus in times of growth and also sets a target for debt of 60 percent of output, which France is at risk of breaching this year.
The commission yesterday said in Brussels that the overall public deficit for the 12-nation euro zone could exceed three percent this year, largely because of the French overrun. The German deficit is also set to be far in excess of the limit however, at 3.8 percent.
Lambert told the banking conference “not one more euro will be spent beyond that authorized by the parliament” for 2003, adding: “I can assure you, it’s an exercise.”
For 2004, the volume of spending would also be stabilized, which Lambert said meant considerable efforts to save money and redirect funds to service the debt and pay for pensions and the government’s priorities, which included defense, security and justice.
He did not mention education, listed as a priority in early August by Prime Minister Jean-Pierre Raffarin.
Referring last week to the public deficit, Raffarin had said getting it back below three percent of gross domestic product was only “on the agenda for 2006”, implying that Paris might not comply with the euro-zone rules before that date.
France’s center-right government, elected last year on promises of tax cuts, has long been cold toward the Stability Pact rules.
Paris says the pact must be respected, but 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 Sunday that Berlin’s deficit would fall below three percent of GDP next year.
Lambert spoke about the tax cuts, saying levels had to be reduced to eliminate fiscal loopholes. He declined to specify by how much taxes could be reduced, but did say: “One percent, three percent, I dare say, would change neither the destiny of France nor that of the public finances. “If it is three percent, which I hope, it would be reinvested in consumption and investment.”
The European Commission yesterday warned France on its worsening economy, saying new figures showing the French budget deficit would hit 4 percent of Gross Domestic Product (GDP) in 2003 were in clear breach of euro-zone financial rules.
“This indicates that there has been no intensification of budget consolidation in France in 2003,” said Commission monetary affairs spokesman Gerassimos Thomas.
In another development, Swedish Prime Minister Goeran Persson claimed in remarks published yesterday that Germany, France and Italy created the current economic weakness in the euro zone by failing to prepare properly for their euro entry during the 1990s.
“If they had behaved as Sweden, Finland the UK and others during the 1990s, preparing their economies for the downturn, we should not have had this situation today,” he told the Financial Times daily in an interview.