The European Commission yesterday instructed France to alter its 2004 budget within eight weeks to make an extra improvement in the cyclically-adjusted deficit equivalent to 0.4 per cent of gross domestic product.

Mr Pedro Solbes, the European Commissioner for Economic and Monetary Affairs, also announced that France would be asked to submit reports on the state of its public finances every six months for the next two years.

France is on course to exceed the EU's budget deficit limit of 3 per cent of GDP for three years in a row, with the Commission forecasting that France's budget deficit in 2003 will be 4.2 per cent of GDP, but, as expected, commissioners decided not to seek more drastic budget cuts or to impose fines.

Mr Solbes explained that the Commission had taken into account an "abrupt and unexpected" deterioration in France's public finances, because of "the worsening economic situation in 2003".

The effort need to bring the French budget deficit below 3 per cent in 2004 was "significantly larger than envisaged last June", tantamount to a reduction in the cyclically adjusted deficit of 1.5 of GDP.

Such an effort might be "economically costly" if carried out in a single year, Mr Solbes said. So the Commissioner was seeking a 1 per cent reduction this year, which would be a credible basis for getting below the 3 per cent of GDP mark in 2005.

He said in 2005 France should reduce its cyclically-adjusted deficit by at least 0.5 per cent of GDP. The Commissioner was still claiming the EU's Stability and Growth Pact must be complied with, even though most observers feel its credibility has been undermined by France's persistent refusal to adjust its budget deficit.

The recommendations proposed by Mr Solbes and his colleagues must be approved by the EU's finance ministers, either at their meeting of November 4th or November 24th. Mr Solbes said that he would wait on France for its reaction.

"It is not up to me to say what France will do. It is up to France," he said. If France did not change its budget the Commission would report to the Council of Ministers.