France seeks extension of budget deadline to 2007

France intends to ask its partners in the 12-nation euro zone to extend the deadline for balancing national budgets from 2004 until around 2007.

The move is sure to be opposed by the EU Commission, but could find favour in Berlin. The commitment, which was part of the "stability and growth pact" launched at the October 1996 Dublin summit, was reaffirmed in March in Barcelona.

In the meantime, the economic daily Les Echos leaked a finance ministry document showing France could not meet the 2004 deadline unless taxes were increased. President Jacques Chirac, who has promised a 5 per cent income tax reduction this year, as well as increased spending on justice and security, said during his re-election campaign that he did not regard the deadline as imperative. The tax reductions he intends to carry out this year will cost the state €2.7 billion.

The most alarming of a series of statements from French officials in recent days was made by the junior minister for local freedoms, Mr Patrick Devedjian, who is also Mr Chirac's lawyer. "The stability pact was already threatened by our predecessors' results," Mr Devedjian said. "It is already in question, so let's not argue about resuscitating something that is dead." Earlier, the junior minister for the budget, Mr Alain Lambert, said, "France has made commitments, and before breaking them, she must begin a dialogue with her partners... My recommendation is to meet our European partners, tell them the situation we're in and see what is the best timetable."

But in a report on public finances in the Economic and Monetary Union, due to be published today, the Commission makes a new call for EU states to meet promised deadlines on budget deficits and practise fiscal prudence."Respecting budgetary pledges made in the stability and convergence programmes is essential to maintain the credibility of the (EU's Growth and Stability) pact," the report says.

"This is particularly the case in the four states which still have a (budget) deficit," it adds, referring to Germany, France, Italy and Portugal.

The French budget deficit this year is expected to be about 2 per cent of GDP, while Germany's is running close to 3 per cent. Portugal recently raised its VAT by 2 points in the hope of balancing its budget by 2004, but the big countries are not willing to take unpopular steps in the run-up to general elections.

The spokesman for the interim government, Mr Jean-Francois Copé, said yesterday that Paris will wait for the results of an audit ordered by Prime Minister Jean-Pierre Raffarin before deciding when it can balance its budget. The 3 per cent ceiling on deficit spending has not been questioned.