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ECOFIN COUNCIL: PARIS MUST CUT DEFICIT BY AT LEAST 0.5% OF GDP BY 2004.

The anticipated clash between France and its Euro-zone partners finally failed to materialise. Spain and the Netherlands were notably keen to demand that France cut its structural deficit by 0.5% from 2003. Ultimately, the Eurogroup compromise text only requires France to ensure "a bigger deficit cut in 2003 than that envisaged". This formula was only rejected by the Netherlands, and later, within the EcoFin Council, by Denmark. "France has the right and the responsibility to spread its budgetary efforts between 2003 and 2004 to cut its deficit below the threshold of 3% of GDP", said Mr Christodoulakis. The Council recommendation also requires France to "limit debt growth in 2003". However, in this case too, the text does not set any limits. France's Economic Affairs and Finance Minister Francis Mer suggested that all the Member States "have recognised the efforts we have made". He also stipulated that following pledges by France "there is no reason for policy to be dictated to it".

The Netherlands has attached a declaration to the Council minutes pointing out that the Eurogroup meeting in October 2002 stipulated that Member States having failed to achieve a situation close to balance or in surplus were required to cut their structural deficit by at least 0.5% from 2003. Later, according to the text, the Eurogroup agreed that countries running excessive deficits should make an effort above 0.5%. "This agreement was confirmed by the March 2003 European Council", according to Dutch Finance Minister Gerrit Zalm. The Netherlands also recalls that on the launch of the early warning procedure in respect of France in January, the EcoFin Council asked France to cut its structural deficit by 0.5% in 2003. The situation in France has since deteriorated. Mr Zalm also drew attention to the efforts made by Portugal (a 1.5% cut in the structural deficit in a year) and Germany (1% deficit cut in 2003). Given this state of affairs, the Netherlands denounces the "more lenient treatment" of France, a fact that justifies its decision to vote down the Commission's draft recommendation. Mr Mer indicated that with just a few exceptions, the attitude of the majority of Member States had been "friendly". He implicitly criticised the Dutch position by indicating that whilst the treatment of France may appear more lenient than that of Germany and Portugal, it was necessary to take account of the deterioration of the economic situation.

The recommendation includes four specific points:

- the French authorities must remedy the country's excessive deficit as soon as possible and by 2004 at the latest;

- they should achieve a "significantly" more important reduction in the structural deficit than initially anticipated;

- they should implement measures to cut the structural deficit by 0.5% or more, to guarantee that the deficit is reduced below 3% of GDP in 2004 at the latest;

- France must restrict the increase in the public debt ratio in 2003.

The Council also took note of commitments by France to pursue budgetary consolidation after 2004 through a reduction in the structural deficit of at least 0.5% of GDP per year, in order to reach a situation close to balance or in surplus in the medium term. The Council also took note of undertakings by France to guarantee strict control over spending in 2003. Finally, Ministers welcomed France's pledge to introduce pension reforms to guarantee the sustainability of public finances in the long term.

Broad Economic Policy Guidelines.

The EcoFin Council also voted unanimously to adopt Broad Economic Policy Guidelines (BEPGs) for the period 2003-2005. Among political priorities, these BEPGs notably identify growth in Europe, the introduction of labour market reforms to guarantee more jobs, reform of pension systems and healthcare.
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Publication:European Report
Geographic Code:4EUFR
Date:Jun 4, 2003
Words:615
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