Posted on 08/28/2003 8:48:55 AM PDT by the_greatest_country_ever
France Defends Its Flouting of Europe's Rules on Deficits By THOMAS FULLER
BRUSSELS, Aug. 27 - Prime Minister Jean-Pierre Raffarin of France defended his country's continued violation of Europe's budget rules today, saying his primary job was to restore growth and increase employment in France.
Defiant amid criticism from countries with balanced budgets, Mr. Raffarin urged that the rules underpinning the euro be interpreted in a more flexible way to allow countries with faltering economies to stimulate growth. His comments came at a news conference after a meeting of the European Commission.
The president of the European Commission, Romano Prodi, smiled as he described his meeting with Mr. Raffarin as "open, frank and friendly." But the subtext of Mr. Prodi's comments afterward was more critical, suggesting that the fundamental rift inside the European Union over budget spending would once again dominate the group's agenda this fall.
"The main instrument of this battle is reform, reform and, once again, reform," Mr. Prodi said as he stood beside Mr. Raffarin. "I underlined that we have no choice but to apply the rules of the treaty."
The debate flared anew as reports suggested that Germany, the largest of the 12 economies sharing the euro, might raise the forecast for its budget deficit as a recession in the first half and rising joblessness erode government revenue. Germany's deficit may reach 3.8 percent of gross domestic product this year, Bloomberg News reported, citing Christine Scheel, head of parliament's cross-party finance committee.
The government previously forecast a deficit of 3.5 percent of G.D.P. Both France and Germany exceeded the European Union limit of 3 percent of G.D.P. last year.
France's budget deficit is forecast to worsen over the next few months as its economy continues to stagnate and tax revenues remain flat. Mr. Raffarin refused to comment on a French newspaper report today that quoted unidentified French officials as saying that the budget deficit would reach 3.7 percent of the size of its economy this year.
But Mr. Raffarin suggested that France's priority was not to pare the deficit. "As a European, I agree to the principle of Europe," Mr. Raffarin said. "As prime minister, I consider that my No. 1 duty is to mobilize all of the strengths of our country for growth and employment. And I will do everything in 2004 to make sure that we return to growth and increase employment."
Smaller European countries, many of which have balanced budgets, are angered by what they describe as France's unapologetic violation of Europe's budget rules.
The finance minister of the Netherlands, Gerrit Zalm, said last month that France and Germany should be fined if they continued to violate the European Union's rules, known as the Stability and Growth Pact. The pact is intended to prevent profligate spending that would undermine the euro.
Mr. Raffarin said the French government would not abandon its program to overhaul the pension, health care and education systems.
The European Commission, for its part, has offered sometimes confusing responses to the budget controversy. Mr. Prodi once called the Stability and Growth Pact "stupid" because it was not flexible enough. Today he said that the pact should be put in place with the "maximum available flexibility."
But Mr. Prodi also said he was skeptical that higher deficits would help Europe emerge from its economic slump. "Higher deficits and debt have not helped any country over the last two years during the economic slowdown,'' he said. "We take the risk of making future generations pay the bill."
France's debt has risen steadily since growth slowed two years ago. Given current trends, the country is likely to surpass 1 trillion euros in accumulative debt by next year.
That would put France over the threshold of allowable debt, according to European Union rules, which stipulate that a country cannot have debt exceeding 60 percent of the size of its economy. Mr. Raffarin said his government would release details of next year's tax and spending plans on Sept. 24.
President Jacques Chirac of France is reportedly pressing for a 3 percent reduction in income taxes next year, after a 5 percent cut in 2002 and a 1 percent cut this year.
Mr. Raffarin said he also discussed with European Commission officials the 7 billion euro ($7.61 billion) bailout of the struggling French conglomerate Alstom, which makes France's TGV trains.
The government's strategy, Mr. Raffarin said, was to avoid what he called the "de-industrialization" of the French economy, "and in particular the bankruptcy of a major group which in two key areas for Europe, energy and transport, plays a major role."
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