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EU Softens Tone On French Budget, Though Rift Remains

by Ulrika Lomas, Tax-News.com, Brussels

30 September 2003

Despite the EU Commission's recent rhetoric regarding French tax and spending policy, which is to push the government's budget deficit further above the 3% threshold for a third consecutive year, the Commission appeared to soften its tone at the end of last week, calling measures outlined in the French 2004 budget plan "encouraging".

The EU's abrupt change in course came soon after comments from Economic Affairs Commissioner Pedro Solbes in which he continued to wave the stick of a massive fine being levied on the French for transgressing the stability pact. Commenting on the country's budget proposals, Solbes said the figures suggest that "France will have a deficit higher than the Treaty reference value of 3% of GDP for a third consecutive year." He added "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 went on to warn: "If no new measures are announced before the expiry of the deadline of 3 October 2003, set by the Council in June, the Commission will in line with the Treaty activate the next steps of the excessive deficit procedure during the month of October."

However, the next day, Solbes's spokesman Gerrassimos Thomas appeared to backtrack somewhat from his master's hard line saying: "The signals from this budget are encouraging," adding that the French "strategy is correct". However, he reiterated Solbes's stance on punishment proceedings, admitting that the Commission "will have to move forward with the procedure under the treaty."

Meanwhile, the Commission is coming under increasing pressure from the smaller member states, particularly the Netherlands and Belgium who have managed to keep their deficits in check, to follow through with its threat to punish nations that consistently breach the stability pact. The Netherlands has threatened the EU with court action if it does not enforce the pact rules.

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