France defied European Union rules on budget rigour today by saying a plan to cut taxes next year was more of a priority than bowing to EU calls for deficit control to underpin the euro.
A week after the European Commission urged him to cut the French deficit, Prime Minister Mr Jean-Pierre Raffarin announced he would lop 3 per cent off income tax next year - at the top end of expectations.
Defending the move, France's budget minister Mr Alain Lambert said "Germany is already in recession, as is The Netherlands and Portugal. The last thing we need is France to join them. . . . France is perceiving signs of a pick-up. We must encourage this recovery."
The tax cut was the third time this week Paris has shown disregard for the European Union's strict deficit rules, which are enshrined in the Stability and Growth Pact - the accord designed to safeguard the euro currency.
France told the Commission on Monday its 2003 deficit would be 4 per cent of gross domestic product - a big breach of the EU's 3 per cent limit - and on Tuesday said it would be difficult to cut it much next year.
"They just couldn't care less," said Deutsche Bank economist Mr David Naude. "They are going for the strategy of letting the deficit go, and just accepting the fines."
Germany also plans to cut taxes in 2004 in an effort to boost growth, but Berlin has sought to convince its EU partners that efforts to curb a rise in borrowing will prevent it from busting the deficit limits next year.
The French economy shrank by 0.3 per cent in the second quarter, putting it on the brink of a recession that has already snared Germany and Italy, and which it too would enter if there is a contraction in the third quarter.