France defies Brussels over deadline for budget cut

France placed itself on a collision course with the European Commission and its partners in euroland yesterday by ignoring a deadline for presenting new measures to reduce its excessive budget deficit.

Brussels must now decide whether to start the complex procedures that could lead to France becoming the first country to be punished for failing to obey the rules of the "growth and stability pact", which limits budget deficits in euroland to 3 per cent.

Although Germany is also in breach, it is considered to have taken enough action, and shown sufficient contrition, to avoid punitive action by Brussels, which can involve "fines" of hundreds of millions of euros.

Earlier this week, France published budget plans for next year that will shatter the 3 per cent ceiling for the third year in succession (a 3.6 per cent deficit after 4 per cent this year and just over 3 per cent in 2002).

Worse, the French Prime Minister and finance ministers have angered Brussels and other euroland countries by suggesting the stability pact should not apply to France. The latest excuse, by Alain Lambert, the Budget minister, is that France cannot respect the deficit ceiling because of the extra government expenditure forced by the 35-hour working week introduced by the previous, Socialist-led government.

Jean-Pierre Raffarin, the Prime Minister, has suggested France should be exempt from the euro deficit rules because it spent more than other euroland countries on defence and diplomacy - which benefit Europe as a whole.

French commentators and economists - even some dubious about the 35-hour week - ridiculed M. Lambert's claim. They said the shorter working hours generated at least 200,000 jobs, which saved government spending on welfare. In any case, the direct costs of the 35-hour week could not be totted up to equal the 0.6 per cent of GDP by which France will overshoot the EU target next year.

Four months ago, the European Commission set yesterday as a deadline for France to table new proposals to limit spending or increase revenues. The 2004 draft budget published this week introduced no substantial reductions in spending and went ahead with a 3 per cent cut in the basic rate of income tax (promised by President Jacques Chirac last year).

Pedro Solbes, the European commissioner for monetary affairs, said yesterday the Brussels executive would consider what action to take at a meeting next Wednesday.

France's cavalier attitude to rules that successive French governments helped to draft has infuriated other euroland countries, which have made painful efforts to stay within the limits.

The issue is expected on the agenda of EU finance ministers when they meet next month.

Ministers will then have a month to instruct Paris to take measures to bring down its deficit. Punitive action is unlikely before the new year.

French officials have given contradictory signals in recent days on whether Paris will be prepared to revise it 2004 budget draft. In a television interview on Thursday, M. Lambert, said Brussels "could not really expect" France to impose spending cuts in a time of recession or near-recession.