Global Economics

France Pressured on Deficit Targets


Worried by Sarkozy's plan to cut taxes, EU finance ministers urge France to adhere to the bloc's deficit reduction targets

EU finance ministers meeting in Luxembourg on Tuesday (5 June) urged France to stick to its EU deficit reduction targets amid concerns about the implications of president Nicolas Sarkozy's tax-cutting plans.

The head of the 13-nation euro group, Jean-Claude Juncker, reminded France of its obligations under the rules governing the euro.

"France clearly must conform to the growth and stability pact, all its good and bad ideas have to fit with the rules of the pact," he said according to French daily Liberation.

Mr Juncker's warning is in response to plans announced by Mr Sarkozy last month to give the country a "fiscal shock" by undertaking a series of tax-cutting measures likely to cost up to 20 billion.

The proposed measures include almost entirely scrapping inheritance tax and cutting tax on overtime.

The announcement came at a time where France's projected deficit for this year is 2.4 percent.

This is under the red line set by the EU where deficits have to kept below 3 percent of GDP but not far enough under for France to be complacent, believe officials.

On top of this, France has promised to reduce its structural deficit by 0.5 percent per year - this was a part of the 2004 reform of the stability pact which said that during periods of growth, eurozone countries should reduce their structural deficit.

Paris, along with all other member states, has also agreed to balance its budget by 2010.

If Paris goes off track it would send a poor message to other member states and would reinforce the belief that big countries can bend the rules as they wish.

For the moment, however, finance ministers are waiting for France's parliamentary elections before giving their final verdict on the Sarkozy plan.

"We must await the installation of the new French government, which means waiting for the end of the day on 17 June and I don't doubt for one moment that France will be able to satisfy the requirements of the stability pact, but we'll have more details in July," said Mr Juncker, according to euronews.

French finance minister Jean-Louis Borloo - attending an EU finance ministers meeting for the first time - countered the worries.

"We want the confidence shock in France to also be a confidence shock for our partners.''

The same meeting also saw ministers unanimously agree that Malta and Cyprus can adopt the euro at the beginning of next year.

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