France urged to trim deficit

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France faced calls from its European partners yesterday to adopt stricter fiscal policies, advice that the centre-right government in Paris views as misguided at a time of economic slowdown in Europe.

As the 15 eurozone finance ministers headed into their monthly meeting, the European Commission and those governments with healthy public finances urged Paris to respect the bloc’s fiscal rules and not risk an excessive budget deficit.

“We must continue to keep government budget deficits down,” said José Manuel Barroso, the Commission president, who in an unusual step was participating in the eurozone ministers’ meeting.

He was backed by Peer Steinbrück and Wouter Bos, the German and Dutch finance ministers, who said France should not only abide by the European Union’s stability and growth pact but aim for a balanced budget by 2010.

“When bigger countries do not follow the rules, that is very damaging for confidence in Europe,” Mr Bos said. “It would be good if there were more preventive sanctions for countries that don’t make an effort to meet the rules in the stability pact.”

All eurozone countries agreed last April to bring their budgets broadly into balance by 2010. But France changed tack after Nicolas Sarkozy’s election as president in May and said that, given his planned economic reforms, a more suitable target date would be 2012.

With a weakening US economy and acute turbulence in global financial markets since August, France contends that a more rigorous fiscal stance would be inappropriate and could even damage the French economy.

France’s argument has won sympathy from the UK, which, though not a eurozone member, is keen not to see its major EU partners pursue “pro-cyclical” policies that risk aggravating Europe’s difficulties.

France expects its deficit this year to be about 2.3 per cent of gross domestic product, little changed from 2.4 per cent last year and 2.5 per cent in 2006.

For its part, the Commission says it is not opposed in principle to fiscal easing at a time of slower economic growth, but that the countries best placed to pursue such policies are those that put their public finances in order when growth was strong.

Mr Barroso said the EU had good reason to be confident it could “come through the current stormy economic weather” and that there was no need to resort to protectionism or “an artificial stimulus of the economy”.

His views were echoed by Ernest-Antoine Seillière, president of BusinessEurope, the pan-European employers’ federation, who said in a speech yesterday that he expected EU economic growth this year of about 2 per cent.

He said that trade flows, financial market integration and confidence channels made it unlikely that the US downturn would leave Europe unscathed, but that European companies were better prepared than they had been in the past to withstand financial market turmoil.

“Profitability and balance sheets are strong after years of successful consolidation, and this will provide ongoing support for capital investment plans,” said Mr Seillière.

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