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France is trying to quell EU criticism of anti-deficit plan

France sped up plans to bring the budget deficit in line with EU rules in an attempt to quell complaints that French overspending is endangering the region's economic recovery.

Finance Minister Francis Mer offered to bring the deficit under the limit of 3 percent of GDP by 2005, a year earlier than planned. Mer's comments went some way to appease Spain, Belgium and Luxembourg, while the European Commission, Austria and the Netherlands remained critical.

"It's very interesting to listen to the clear commitment of Francis Mer to organize structural reforms and to go further with France's deficit,'' said Belgian Finance Minister Didier Reynders as EU ministers met in Stresa, Italy. "We now need to have clear figures" and "a very important effort in 2004."

France's defiance of the budget rules and its proposed 7-billion-euro (US$7.8 billion) bailout of Alstom SA come as Europe attempts to boost competitiveness by scaling back the government's role in the economy. The 12-nation euro economy shrank 0.1 percent in the second quarter. The commission this week cut its growth forecast for the full year in half to 0.5 percent, which would be the slowest since 1993.

Tax cuts and the economic slowdown will keep the French deficit over the limit for the second year in a row. France risks sanctions that could include fines unless it announces steeper deficit cuts for next year by October, the commission said.

The budget rules were designed by Germany to protect the euro.

No country has yet been fined. Penalties could reach 0.5 percent of GDP and would be imposed by EU finance ministers under a voting system skewed toward larger countries.

Luxembourg Prime Minister Jean-Claude Juncker -- the intermediary between France and Germany in the negotiations over the stability pact in the 1990s -- said Mer's promises may be enough to get France off the hook.

"I'm opposed to a fetishistic, automatic approach," he said.

"The essential thing is to guarantee stability and have growth, and if we can do that on good basis for 2005 in a super-transparent system, we should work along these lines."

Italy, the third largest economy using the euro, also supports a more flexible interpretation of the budget rules.

"It's necessary to recover the true meaning of the Stability and Growth Pact because stability without growth would lead to Europe's decline," said Italian Prime Minister Silvio Berlusconi at a conference in Bari, Italy.

Germany, which with France makes up half the 12-nation economy, is also set to breach the limit for the second year. Germany has faced less criticism than France because it has promised more spending cuts.

"It is now clear that France will abide by the rules of the stability and growth pact -- France is committed to the pact," German Finance Minister Hans Eichel said.

All euro governments originally promised to get their budgets "close to balance" by last year. Only seven of them -- Belgium, Spain, Ireland, Luxembourg, the Netherlands, Austria and Finland -- met that goal.

Mer's offer increases pressure on the French government to present a 2005 social security budget that will introduce a cap on health-care spending, the main cause of the welfare system's widening deficit.
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