Jospin seeks Emu fudge with Bonn

The French government is seeking a formal agreement with Germany to allow a fudged interpretation of the budgetary guidelines for membership of the single currency.

The new Socialist-led government wants to quell political and market speculation by agreeing with Bonn by the end of July that its budget deficit this year can be around 3.3 per cent of GDP, rather than the 3 per cent laid down in the Maastricht treaty. It would give an undertaking that it would hit the 3 per cent target next year.

In return, it would be understood that Bonn could overshoot the 3 per cent target in 1998, when Chancellor Helmut Kohl's government faces both a general election and huge budgetary problems.

Preliminary contacts between the two governments have taken place already, according to the newspaper Liberation. But the French ideas might cause more problems for the Germans than they solve. A public admission that both countries are overshooting Maastricht could harden domestic German opposition to Economic and Monetary Union (EMU) and encourage speculation on the bond and currency markets.

Other EU countries might raise their eyebrows at a private deal between Paris and Bonn.

In a budgetary framework sent to the principal spending ministries this week, and leaked to Liberation and Le Monde, Lionel Jospin, the French Prime Minister, calls for budgetary rigour and the very gradual introduction of the job-creating plans outlined in the election campaign in May. He says his intention remains both to meet the Maastricht timetable and keep his election promises, something which the centre-right and many commentators dismiss as impossible.

Although no deficit figures are mentioned in the Jospin framework, officials told the two newspapers the aim was to muddle through 1997 with a deficit of about 3.3 per cent - which would require unspecified spending cuts - and prepare a budget for 1998 respecting the 3 per cent guideline.

It is unclear how this could be achieved. Predictions for the 1998 French deficit are around 4 per cent of GDP even before Mr Jospin begins to implement his reflationary ideas.

Mr Jospin admitted to the cabinet that he was trying to square a circle, but said it would be possible through a mixture of economic growth, budgetary rigour and transfers within the present spending targets.

Paris (Reuter) - France's left-wing government said conditions were not ripe for France to return to the military wing of Nato, but it was up to President Jacques Chirac to decide whether to pursue moves to rejoin.