Brussels challenges France with deficit deadline (Roundup)

Nov 11, 2009, 14:20 GMT

   Brussels - The European Commission on Wednesday told France it has until 2013 to put its public accounts in order, defying objections from Paris that it would need one extra year.

Joaquin Almunia, the European Union's economic and monetary affairs commissioner, imposed a similar deadline on Germany, despite its budget deficit being more than double that of France.

   France's budget deficit is expected to reach 8.3 per cent of gross domestic product (GDP) this year, well above the 3-per cent-limit set by the bloc's Stability and Growth Pact.

Germany's deficit is estimated at 3.4 per cent this year and forecast at 5 per cent in 2010.

But while Germany has said it will endorse Almunia's decision, France has already indicated that it will need one extra year to reduce its budget deficit to within 3 per cent.

Speaking after talks with fellow EU finance ministers in Brussels on Tuesday, French Economy Minister Christine Lagarde had described the commission's proposed deadline as 'very unrealistic', adding that meeting it would prove 'extraordinarily difficult'.

France was already granted a one-year reprieve after the commission acknowledged that the worsening economic crisis had impacted budgets 'beyond the control of governments.'

  In the case of Germany, officials in Brussels had quietly expressed concern that tax cuts worth 24 billion euros (36 billion dollars), agreed by its new centre-right government, could worsen the country's battered public finances.

But Almunia said Wednesday he had been re-assured about Berlin's commitment to the Stability and Growth Pact by the new German finance minister, Wolfgang Schaeuble.

'We all agree on the need to design clear and credible exit strategies to reduce public deficits and debts, which have been dramatically increased by the crisis,' Almunia said.

'Applying the pact and devising such strategies (...) is necessary in order to avoid an increase in long-term interest rates that would raise the cost of servicing the debt and the financing costs for families and companies, putting a break on the economic recovery itself,' Almunia said.

The commissioner had previously said that any deadlines would be based on a series of objective factors, including a country's public debt level and its reputation, as reflected on the financial markets by bond spreads.

As a result, the commissioner set tougher 2012 deadlines for Italy and Belgium in light of their huge public debts, but gave Britain, whose public accounts have suffered badly as a result of the recession, a more lenient 2015 deadline.

Greece, on the other hand, was lambasted for ignoring the commissioner's previous recommendations. Its budget deficit is now set to soar to 12.7 per cent this year and remain above 12 per cent until 2011, unless urgent action is taken.

   EU officials had also expressed dismay at Greece's tendency to produce unreliable economic estimates and were preparing to effectively put the country's accounts under administration.

At Tuesday's meeting in Brussels, Greek Finance Minister George Papakonstantinou said his government would deliver its final budget for 2010 by February. The new Greek government aims to cut its deficit by 3.3 per cent in a year by cracking down on tax evasion and cutting public expenditures.

   Almunia also imposed an austerity regime on Ireland by asking it to cut its deficit by 2 per cent per year over the 2010-14 period. Ireland's budget deficit is forecast to reach a jaw-dropping 14.7 per cent in 2010.

'I believe the deadlines proposed today are appropriate and realistic,' Almunia said.

Wednesday's batch of measures also involved Austria, the Czech Republic, Slovakia, Slovenia, the Netherlands and Portugal, all of whom have excessive deficits as a result of the recession.