Global Economics

EU Leans On France to Meet Deficit Goals


European ministers pressure Paris to meet budgetary deadlines. Meanwhile, the Commission stays optimistic regarding a possible recession

Ministers from eurozone countries have asked France to keep committed to an original deadline of 2010 for balancing its budgetary deficit, but indicated they would take into account the country's growth records in later evaluation.

Despite French pressure to avoid any reference to the deficit timetable adopted by member states of Europe's monetary union last April in Berlin, finance ministers of the 15-strong group agreed on Monday (11 February) to demand Paris achieve it.

"France needs to reinforce its budgetary consolidation efforts... through a rigorous application of its budget for 2008... to be on target for its MTO's [Medium Term Objective] in 2010 as cyclical conditions allow," Luxembourg prime minister and eurogroup chief Jean-Claude Juncker told reporters following the Brussels meeting.

It was mainly due to forecasts of economic slow-down that Paris insisted it needs to revise the earlier budgetary commitments and balance its books only by 2012.

"We are making every effort possible to reach balance in 2010, but in the current situation, there's no point telling stories, it will be very difficult," French finance minister Christine Lagarde was quoted as saying by French daily of Le Monde.

But some large EU countries did not accept such an explanation. "The French already asked for that even before there was a downturn so I don't think that's the real argument," commented the Dutch finance minister Wouter Bos.

German finance chief Peer Steinbruck also pointed out that the rules underpinning the euro would lose credibility if not respected, saying: "in particular, the large member states should bind themselves to the commitment to reach their medium-term objectives, by at the latest, 2010."

However, while confirming the original deadline, the eurogroup ministers also admitted the cyclical movements of global and national economies would be taken into account in future assessments of countries' performances.

"When the time comes, we shall have to asses the situation if France does not achieve its result. We will have to asses whether France should have been able to achieve its MTO's given the cyclical conditions," said Mr Juncker.

"So we may have to come back to this issue for France and for other Member States too, when the time comes. The eurogroup just want to ensure that the Berlin decision is complied with," he added.

No recession in Europe

Meanwhile, European Commission president Jose Manuel Barroso made an extraordinary appearance at the eurozone meeting for a debate on the general economic trends, following recent turbulences on global financial markets.

"We have no rational reason to fear recession," Mr Barroso said in a statement prior to the ministerial session, amid worries of worsening performance of US economy which could have a negative impact also on Europe's economy.

He argued the EU member states should take action rather than sending pessimistic messages. "If we talk down other sectors of the economy, or if we hasten into knee-jerk measures, we will end up undermining the strong fundamentals on which our measured confidence is based," the commission president insisted.

But his colleague in the 27-strong college, economy commissioner Joaquin Almunia, did express clearly the worries over rising inflation which accelerated in the monetary union to 3.2 percent in January -- a 14-year high.

"We expect the raise of inflation to be temporary but we are extremely concerned by this. We need to stay alert and remain vigilant so that inflation does not become a trend in expectations of economic agents," said Mr Almunia.

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