France 'off the rails' on budget - Commission

France was yesterday accused by the European Commission of letting its public finances "run off the rails", as Brussels turned the blame on Paris for the breakdown in the European Union's budget discipline.

In a shift in its approach, the Commission is seeking to isolate France as the main cause of the crisis gripping the EU's budget rules. Although Germany and Portugal face similar deficit problems, the Commission claims both are doing their best to comply with the EU's Stability and Growth Pact.

However, Brussels fears that President Jacques Chirac's government will this month present a budget that will flout the pact for the third successive year.

Unless France backs down, the Commission will be forced for the first time to issue specific recommendations on how a member-state should run its finances. Paris could face fines if it continues to break the rules.

Tensions were heightened on Monday night when Paris revised upwards this year's deficit forecast to 4 per cent of gross domestic product, well above the stability pact's 3 per cent ceiling.

Mr Pedro Solbes, EU monetary affairs commissioner, revealed that France's worsening finances could cause the overall deficit level for the 12-country euro zone this year to exceed 3 per cent.

"Given the fact that France seems to have gone off the rails a bit in 2003, the euro-zone deficit will be around 3 per cent, or exceed the 3 per cent figure," Mr Solbes's spokesman said.

The symbolism will not be lost on many smaller EU member-states, which run tight public finances and blame larger countries such as France and Germany for undermining the euro by running large deficits.

While Germany and Portugal have promised to bring their deficits below 3 per cent in 2004 - an outcome doubted by many economists - France has not disguised the fact that it is unlikely to stay within the rules.

Mr Alain Lambert, budget minister, said France valued the stability pact but that the government's first responsibility was to foster a return to growth. Commission officials claim that while German economic policy reflects its obligations to its single currency partners, the French debate is almost devoid of a sense of European solidarity.

The praise lavished on Germany - whose deficit could reach 3.8 per cent this year - partly reflects the fact that the Commission will need Berlin's support if it is forced to take on Mr Chirac's government. Finance ministers from France's 11 euro-zone partners will have to vote on any Commission recommendation for Paris to impose spending cuts or tax rises, possibly in November.

Germany will then have to choose whether to side with the Commission and its attempts to uphold EU discipline, or to show solidarity with its neighbour. - (Financial Times Service)