The European Commission officially confirmed today that France had failed to take effective action to bring its budget deficit back below European Union limits in 2004.
The EU executive, which had flagged the move before the October 3rd deadline expired, will now move to the next stage of a disciplinary procedure designed to prevent budget slippage in one euro zone member driving up borrowing costs for all.
This entails drawing up more detailed budget recommendations for the euro zone's second biggest economy in time for a November 4th meeting of EU finance ministers.
France expects to top the EU deficit limit of three per cent of gross domestic product for the third year running in 2004. Its budget forecasts a 3.6 per cent shortfall next year after a projected 4.0 per cent this year. It includes euro3.5 billion in tax cuts in 2004.
The Commission said Paris had taken a number of steps to cut its deficit and implemented an important pension reform but it had not done enough to comply with orders issued by EU finance ministers in June.
In particular, France had not cut its structural deficit, which excludes the impact of economic swings, by enough to bring its nominal deficit below three per cent of GDP in 2004.
A projected increase in French debt to 61.4 per cent of GDP in 2003 from 59 per cent in 2002 was further evidence that France had failed to heed EU orders, it said.