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EU Grants France Reprieve on Budget Deficit - 2003-11-04

France has won a brief reprieve in its long-standing dispute with the EU executive body over its violation of EU budget rules that underpin the euro single currency. France's partners in the bloc have given Paris an extra three weeks to reduce its budget deficit before considering whether it should face fines for breaking the rules.

At stake in discussions among EU finance ministers is the credibility of the bloc's Stability and Growth Pact, which specifies that a member state's deficit should not exceed three percent of its gross domestic product.

France has gone over that limit for the past two years, will do so again next year, and is on track to exceed the limit in 2005 as well.

Germany, at whose insistence the three percent limit was set, finds itself in the same situation as France. And so the two biggest EU countries, both of which face tough economic times, teamed up this week to cajole most of their partners into giving France more time to get its house in order.

Germany's case was not on this week's agenda, but it will be at the next finance ministers' meeting November 24-25.

Austria, Finland, and the Netherlands opposed giving France a reprieve, arguing that they have tried hard to get their finances in order and do not see why France should be given preferential treatment. But they are small countries, and France and Germany together are responsible for more than half of the total output of the 12 nations that share the single currency.

An EU diplomat says such countries as Spain and Greece, which have also tried to balance their books, were reluctant to vote against France because Germany, France's ally on this and many other European issues, is the biggest contributor to the EU budget and, as such, is the source of much of the funds they receive for infrastructure improvement.

France and Germany have argued that stoking the economy through public spending and creating jobs in times of recession or near-recession is more important than adhering to budget limits.

The European Commission, which runs the day-to-day EU affairs, has insisted that the budget rules must be respected, or the credibility of the euro will diminish.

French Finance Minister Francis Mer promised his colleagues that he will unveil, what he called, credible efforts by their next meeting to get his country's deficit under the three percent limit by 2005. He did not spell out what measures France will take, but French officials have said they may draw up reforms to their country's health-care system and eliminate one of France's 11 public holidays so as to cut the deficit.

The European Commission is standing firm in its view that if France does not come up with a plan to bring its deficit under control, it should be fined billions of dollars for busting the budget limits.