Eurogroup to chide Sarkozy for bending finance rules

Eurogroup finance ministers will tell French President Nicolas Sarkozy next week that his budget plans do not respect rules designed to cut public deficits.

In an unusual move, Sarkozy has invited himself to a meeting of Eurogroup finance ministers next Monday (9 July) to present tax and spending plans which will delay balancing France’s budget until 2012, two years later than the agreed target of 2010. There is only one precedent of a head of state or government personally addressing the finance ministers to plead for escaping reprimand for breaching the treaty-set budget deficit limit: Italy’s Silvio Berlusconi attended the Ecofin Council in 2004.

Sarkozy argues that delaying cutting the deficit is allowed under the terms of the EU’s revised Stability and Growth Pact. Jean-Pierre Jouyet, French EU affairs minister, said on 2 July that the reformed pact provided a "margin of manoeuvre that can provide more flexibility when you are realising a reform programme that aims to increase the potential growth rate".

But a senior EU finance official said that the pact "doesn’t provide the flexibility Mr Sarkozy thinks it provides". The official, who is involved in preparing next week’s meeting, said that member states which had not yet balanced their budget deficits had to cut them by 0.5% of gross domestic product (GDP) a year but could do less if they were carrying out structural reform or improving the long-term sustainability of public finances. "We are yet to be convinced [that Sarkozy is doing this]," the official said. He added that countries needed to show that they were meeting certain conditions but France was "not meeting those conditions".

The official also expressed concern about the nature of the measures that the French government was proposing, not just the postponement of commitments. "There’s the question of whether it’s economically sensible to implement as a package," the official said.

Next week’s meeting promises a tough exchange of views with eurozone finance ministers ready to criticise what they see as Sarkozy’s backsliding on earlier pledges to cut its deficit.

Eurozone finance ministers agreed at an informal meeting in Berlin in April to balance their budgets by 2010. Germany’s Finance Minister Peer Steinbrück presented budget plans which would see Germany balance its budget by 2008.

But Sarkozy is planning what he calls a "confidence shock" to the French economy, a package of tax cuts, in order to boost economic growth.

Portugal’s Finance Minister Fernando Teixeira dos Santos, who is president-in-office of the Ecofin Council, said last weekend that Sarkozy’s position was a "political problem". Teixeira dos Santos warned that there would be a "reaction" from France’s peers around the table.

The French budget situation adds to fears that eurozone members are not doing enough to get their public finances in order despite strong economic growth. Joaquín Almunia, the European economic and monetary affairs commissioner, spoke of "deep concern" at Italy’s backtracking over cutting its deficit in its latest budget plans.

The senior finance official said that "we see the reappearance of problems in the past," referring to EU governments’ failure to take advantage of economic growth in the late 1990s to consolidate their budgets.

The official said that Sarkozy was not expected to launch a discussion on economic governance for the eurozone at next week’s meeting because the ministers were only supposed to focus on France’s and Ireland’s budget plans. He added that if Sarkozy proposed any ideas for more political influence over monetary policy, they "would not meet with any approval at all" from finance ministers.

Eurogroup finance ministers will tell French President Nicolas Sarkozy next week that his budget plans do not respect rules designed to cut public deficits.