Tackle your deficit now, Solbes tells French

Date: 02/10/03

By Peter Chapman

PEDRO Solbes, the economic and monetary affairs commissioner, has pledged to get tough with France if it fails to tackle its illegal budget deficit.

Switching his attention from calls for his resignation over his failure to halt the financial scandal at Eurostat, Solbes admitted Paris “would not meet” a deadline tomorrow (3 October) for taking corrective measures to stop its deficit breaching the 3% of income limit set by the EU's Stability and Growth pact. This was confirmed by French Finance Minister Francis Mer. Solbes' comments follow last week's presentation of the 2004 budget, in which France warned that its deficit would fall only slightly next year, to 3.6% from this year's 4%.

The EU executive might now, together with finance ministers, intervene and advise the French how they might trim the deficit. But if Jean-Pierre Raffarin's government continues to go its own way, flouting the pact, the Commission could ultimately be forced to recommend fining France.

Solbes told MEPs in the Parliament's economic and monetary affairs committee: “I told you before that we have always applied the rules very exactly in the Commission and we will have to do that with France.

“I would not hesitate for a moment to apply sanctions if that is what is required by an implementation of the treaty,” he added. Under EU rules, the French could escape punishment if the Commission deems that 'special circumstances' had contributed to the situation.

Solbes said the Commission is still undecided whether this let-out clause should apply. But his chief economist, Klaus Regling, told journalists on Tuesday that he could not point to evidence of such special circumstances in the Commission's latest quarterly report on the euro area, released this week. Earlier, Solbes told reporters that the latest French budget was at least “more ambitious” than draft plans to cut the underlying deficit that excluded the effects of the business cycle.

The budget tensions with France and its 'bad boy' neighbour Germany have led to calls for a weakening of the Stability and Growth Pact to make it more growth orientated, and a revision of the 3% limit. But Solbes told MEPs a limit was necessary to make the system work, adding that 3% “already includes a minimum of flexibility”.

“I will carry on defending the pact,” he said, adding: “I do not think we have a better alternative.”

Solbes sounded an optimistic note on the broader performance of the EU and eurozone economy - although he warned that the recovery of the world economy depended on the “sustainability of the recovery in the US”.

Investment conditions in the eurozone were steadily improving, mainly thanks to low interest rates, he added.

“We see a speeding up of the growth rate in the second half of this year - which means that the growth rate for the whole of this year will be around 0.5%,” he said.

Meanwhile, Solbes played down his personal role in the Eurostat crisis - even though he has ultimate political responsibility for the EU's Luxembourg-based statistics agency.

Last week Commission President Romano Prodi insisted the blame for wrongdoing lay with bosses at the agency rather than with Solbes. “The Commission will apply the standards set for us and the rules set for us, so I therefore see no danger of the Commission position being undermined,” said Solbes.