President Jacques Chirac yesterday defended France's 2004 budget breaching the European Union's stability pact, claiming it was a deliberate choice to promote growth and jobs.
His comments came as the French cabinet yesterday approved next year's budget with a deficit equivalent to 3.6 per cent of gross domestic product - well above the pact's 3 per cent ceiling.
With simultaneous projections of the deficit falling to 2.9 per cent in 2005, President Chirac confidently stated: "The reduction of our deficits has begun with determination - this is a duty towards Frenchmen and an obligation towards Europe."
However, the European Commission yesterday signalled that it would soon launch against France the first enforcement action under the stability pact, which underpins the euro.
The Commission will next month propose what extra measures France must take to comply with the rules, and can impose heavy fines if Paris continues to flout the pact.
However, EU finance ministers now accept there will be no showdown with France. Officials in Brussels admit they plan to say that "special circumstances" apply to France, because of the prolonged economic slowdown and the need for structural reform.
Next year's budget had been well signalled, but the exact estimate of the 2004 deficit was not confirmed until yesterday by Mr Francis Mer, finance minister.
This is based on the economy growing 1.7 per cent next year against 0.5 per cent in 2003, on the back of increased consumption in a climate of continued low inflation.
Income tax cuts averaging 3 per cent are geared to boost consumption, while additional social security breaks for employers are designed to raise youth job creation and investment in new technologies.
Disposable income, aided by a raise in the minimum wage, will increase 1.5 per cent against 0.8 per cent this year.
The budget deficit for the first time is a more transparent exercise and incorporates a number of previously off-balance sheet items.Public spending will remain 53.9 per cent of GDP, one of the highest levels in the EU. - (Financial Times Service)
