The European Commission wants France to take steps to control public spending, but is not ready to talk about warning it on its budget deficit, a Commission spokesman said yesterday.

The statement by economic and monetary affairs spokesman Mr Gerassimos Thomas came shortly after the new French government published an audit forecasting the deficit would be between 2.3 per cent and 2.6 per cent of gross domestic product this year.

"We want to see what actions the French government intends to undertake so as to bring about continuation of budget consolidation in the course of 2002," Mr Thomas told a news conference.

"This is not the right moment to decide to take a decision on a possible warning. The Commission is going to analyse the figures and the advisability of sending a warning to France."

The Commission, the guardian of the budget rules drawn up to safeguard the euro, recommended a warning for Portugal and Germany earlier this year.

The French government said yesterday it would go ahead with a planned initial 5 per cent cut in income tax despite the audit showing the country's public deficit will outstrip previous official forecasts this year.

The deficit figure it forecasts compared with the 1.8 per cent to 1.9 per cent deficit forecast by the ousted Socialist-led government of former prime minister Lionel Jospin.

Budget developments in Portugal would also be closely followed, Mr Thomas said.

A preliminary European Central Bank report puts Portugal's 2001 deficit at 3.9 per cent of output, well above government forecasts, Prime Minister Jose Manuel Durao Barroso said on Wednesday. - (Reuters)