Although at first sight, France's 2004 budget announced last month seemed to continue to cock a snoot at the EU's Stability and Growth Pact, discussions between Economics Commissioner Pedro Solbes and French Finance Minister Francois Mer (pictured) on Monday have led to a rapprochement between the warring parties.
After the discussions, Mr Solbes said that the budget is "a step forward and better than expected." Mr Mer had apparently pointed out the government's tight control of spending, tax increases on fuel, alcohol and tobacco, and efforts to rein in the runaway health-care and pensions systems.
Althought the budget forecasts a 3.5% of GDP deficit in 2004 (breaking the Pact's 3% upper limit for the third straight year), the European Commission accepts the credibility of most of the key assumptions made in the budget, including a growth forecast of 1.7%.
The most controversial aspect of the budget, which brings in a raft of measures to support entrepreneurial activity and stem the flight of people and capital to more tax-friendly climes, is a further reduction of 3% in personal income tax, coming after a 6% reduction already in place this year.
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