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Wednesday, August 27, 2003

French Deficit Could Hit 3.9% This Year

France's anticipated budget deficit for this year continues to grow, as do the expectations for next year. This breach of the rules, together with the similar difficulties being experienced in Germany, continues to pile on the pressure in the debate about the eurozone growth and stability pact.

Jean-Pierre Raffarin, the French prime minister, will on Wednesday tell Romano Prodi, president of the European Commission, that France's budget deficit for this year is worse than expected. Internal government estimates, to be made public next month, indicate that it will also exceed eurozone limits in 2004. The disclosure in Wednesday's Les Echos, the French business paper, means that France is set to become the first country of the eurozone to admit it will breach the rules of the stability and growth pact, by exceeding budget limits in three consecutive years.

Mr Raffarin will on Wednesday explain how France's deficit will hit at least 3.7 per cent of gross domestic product in 2003, a notch above the latest estimate of 3.6 per cent announced in June. Government sources now fear a deficit of as much as 3.9 per cent. France's own projections for 2004 will be published on September 24 in the 2004 draft budget. Next year's deficit depends on adjustments on the budgets of the state and the social security but as things stand, it should reach between 3.7 and 3.8 per cent. By failing to rein back its deficit under the stability pact's 3 per cent ceiling in 2004, France risks a penalty, under which it may have to pledge a €4bn deposit. According to the Maastricht Treaty, a country has one year to come back within the 3 per cent limit after it has breached the ceiling.
Source: Financial Times
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