EU finance ministers talk tough on fiscal reform

LUXEMBOURG

France faced flak from its euro-zone partners June 2 over its half-hearted efforts to trim its budget deficit.

Finance ministers from the 11 nations that circulate the euro were expected at an evening meeting in Luxembourg to press Paris to speed up the pace of its deficit reduction.

The European Union's executive commission has ruled that France last year breached the EU stability and growth pact's deficit limit, which stands at 3 percent of economic output, and wants the government to take remedial action.

One diplomat predicted "difficult and animated discussions."

The finance ministers' agenda also include will the euro's surge against the dollar in recent weeks, which is fueling fears about the competitiveness of European exporters and wiping out the benefits of monetary easing by the European Central Bank.

And Italy is likely to be in the dock at the Luxembourg talks over its refusal to honor an EU savings tax agreement reached in January, after years of negotiations.

Sources said France was refusing to commit itself to deficit cuts of more than 0.1 percent of GDP this year, given the poor outlook for growth as the euro zone reels from an economic slowdown.

But at a meeting of all 15 finance ministers this week, the EU was expected to give France until Oct. 3 to come up with concrete measures to bring its deficit down from a projected 3.7 percent of GDP in 2003.

France argues that the European Commission's verdict that it posted an "excessive deficit" last year merely requires it to return to a balanced budget without stipulating any figures.

EU Economic and Monetary Affairs Commissioner Pedro Solbes said, "We have always taken this French position into account and although France is not formally obliged to go below 3 percent in 2003, it cannot avoid having to respect the 3 percent (deficit ceiling) next year."

Germany, which also posted an "excessive deficit" in 2002, has adopted deficit cuts of 1 percent of GDP this year as part of a raft of hard-hitting economic reforms pledged by Chancellor Gerhard Schroeder.

But the French government has insisted that while it will do everything to respect the pact's stability, its emphasis must be on growth rather than belt-tightening.