French president Nicolas Sarkozy claimed he had won support from EU finance ministers last night for his decision to delay balancing the French budget.
In an unusual appearance for a head of state at a meeting of the eurozone ministers, Mr Sarkozy laid out his plans to undertake a fundamental reform of the French economy.
"If we don't get to 2010, I'll be the first to regret that fact but 2012 isn't a ridiculous date," Mr Sarkozy told reporters about his plans to eliminate France's budget deficit after the meeting.
Central to Mr Sarkozy's vision is a proposal to cut a range of taxes, a move that will prevent his government from balancing its budget by a target date of 2010. This could also leave France's budget deficit perilously close to the 3 per cent budget deficit rule contained in the EU's budgetary rules.
In April all 13 eurozone finance ministers agreed to use the current economic upswing to balance their budgets by 2010. But since being elected in May Mr Sarkozy has backtracked from the commitment creating tensions with his EU colleagues.
Luxembourg prime minister and eurozone chairman Jean-Claude Junker said last night he was relieved to see France embarking on a root and branch reform programme. He praised Mr Sarkozy for agreeing to submit to regular monitoring of its budget deficit. France will provide a revised stability programme to the eurozone group in September.
Mr Sarkozy also sought to allay EU fears over the French deficit by predicting it would fall to 2.4 per cent in 2007, not the 2.5 per cent previously predicted.
But EU sources said the discussions were unusually "frank" and at times heated.
German finance minister Peer Steinbrueck is believed to have criticised the French decision to backtrack from a commitment to balance its budget. Mr Sarkozy argues that he cannot implement the type of fundamental reform the French economy needs to be competitive while sticking to the existing budget targets. But his decision to delay balancing the budget, and his criticism of the European Central Bank over the strength of the euro, has alarmed some EU colleagues.
In a rare comment prior to the start of the Eurogroup meeting last night, Jean-Claude Trichet told reporters: "The Stability and Growth Pact has to be respected."
The EU budget rules, which are known as the Stability and Growth Pact, say that member states' deficits cannot be higher than 3 per cent of gross domestic product and should be cut by at least 0.5 percentage point a year during economic good times.
The rules underpin the euro, and critics fear that Mr Sarkozy's decision to backtrack on a commitment to balance the French budget could cause currency instability. But there are few signs that the energetic Mr Sarkozy is ready to listen to his colleagues or take a back seat in EU decision-making.
