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World / Europe Print article | Email
Commission powerless as Paris defies euro rules
By George Parker and Daniel Dombey in Brussels
Published: October 3 2003 18:06 | Last Updated: October 3 2003 18:06

France on Friday delivered another hammer blow to Europe's budget rules, when it failed to meet a four-month EU deadline for curbing its record deficit.

The European Commission was forced to concede that France now looked certain to break the stability and growth pact's 3 per cent deficit limit for a third successive year in 2004.

Senior Commission officials privately admit there is little they can do to force France to toe the line, raising the question of whether any country will ever be sanctioned for breaking the pact.

Although the stability pact - which underpins the euro - will continue, France's flouting of the once-feared rules has left the pact looking like a paper tiger.

European Commission officials now face the humiliating task of identifying "special circumstances" to explain why they are not prepared to impose fines on the French government - the ultimate sanction allowed under the pact.

There is widespread acceptance in Brussels that it is neither economically or politically possible for the Commission to apply sanctions to one of Europe's most powerful member states.

"We have to take into account the economic viability of our recommendations," said one senior Commission official.

He said that if Brussels ordered France to comply with the pact in 2004 it would require a "huge" cut in spending, equivalent to more than 1.5 per cent of gross domestic product.

Politically the Commission is under significant pressure to apply the pact "flexibly", even if that means the iron discipline once envisaged is effectively being discarded.

France intends to tell eurozone finance ministers on Monday that it is suffering from "exceptional circumstances" and is reining in its budget deficit, even if it is not doing enough to bring it below the 3 per cent line.

French officials say the weak state of the European economy is the reason why the country has failed to meet the terms of the stability and growth pact.

They count on the support of Germany - also likely to break the pact for a third successive year in 2004 - Italy and the UK, although Britain is outside the eurozone.

Spain, once one of the most vehement defenders of the pact, also appears to be backing down.

Paris maintains that this year's expected deficit of 4 per cent of GDP should fall to 3.6 per cent in 2004.

It says that it is not possible to carry out the 10bn ($11.7bn, 7bn) of spending cuts needed to bring the deficit into line.

The Commission will now propose new recommendations for France to ensure that its deficit is below 3 per cent in 2005. Additional reporting by Hugh Williamson in Berlin

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