France To Breach Stability Pact Rules Until 2006

by Ulrika Lomas, Tax-News.com, Brussels

12 September 2003

French Prime Minister Jean-Pierre Raffarin's recent assertion that France is "entirely committed" to the growth and stability pact now looks even more hollow in the light of a revelation by budget minister Alain Lambert that the nation's budget deficit is unlikely to fall below 3% until 2006.

The French government has steadfastly ignored all pleas by Brussels to tighten its belt and reign in spending, choosing instead to follow the route of tax cuts, with the Prime Minister confirming recently that a further 3% will be trimmed off of income tax in 2004.

With the French seemingly turning a blind eye to the pact and the threat of hefty EU imposed fines, and a deaf ear to the protestations of Commission president Romano Prodi, some observers have suggested that the rules in their current form are dead in the water, especially as the eurozone's largest economy, Germany, appears to be treading the same path.

However, whilst the EU's two pivotal powers seem to have given up on the pact, Prodi has continued to fight his corner, contacting the French Prime Minister this week by telephone "to express his preoccupation with recent press statements on the forthcoming French budget." Prodi urged Raffarin "to find a solution within the rules of the Treaty and the Stability and Growth Pact," stressing that "the economic and budgetary policy plans and decisions taken at this juncture have to be credible and sustainable over the long term."

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