French Prime Minister Mr Jean-Pierre Raffarin could this week give the European Commission a rough idea of how he intends to bring his country's budget deficit back below European Union limits.
French Prime Minister Mr Jean-Pierre Raffarin could this week give the European Commission a rough idea of how he intends to bring his country's budget deficit back below EU limits.
Mr Raffarin is under pressure to deliver promised tax cuts at a time when the euro zone's second biggest economy is contracting.
But France, which broke the EU deficit limit of three percent of gross domestic product (GDP) in 2002, also faces an October 3rd deadline to set out measures that it will take to cut its deficit to below three percent of GDP.
Mr Raffarin could give European Commissioners an idea of how he plans to square this circle when he meets them tomorrow.
"We are waiting at the moment until October 3rd to see what measures France says it intends to take next year to correct the shortfall. I think this is something that will be discussed when Mr Raffarin comes to visit the Commission tomorrow," Commission spokesman Mr Gerassimos Thomas said.
One senior French lawmaker allied to the government said any tax cuts should be accompanied by a reduction in state spending. The centre-right administration is due to present its 2004 budget bill in mid-September.
"If we really want to indicate that tax cuts will continue, there are two conditions," Mr Pierre Mehaignerie, the chairman of the parliamentary finance committee told the daily Le Monde.
"The cuts should be backed by new reductions in spending, structural and permanent, and they should benefit those who don't pay income tax as much as those who do pay it," he said. The EU's Stability and Growth Pact on budget discipline could also be loosened to allow the French government to carry a deficit in excess of the EU rules while it seeks to lift growth.
"The first priority remains employment, and therefore growth," Mr Mehaignerie said. "In this context, isn't it possible to adapt the Stability Pact? Debate with Brussels is necessary. No country in Europe has an interest in seeing France and Germany dive into recession."
Mr Mehaignerie said a possible reform of the pact could oblige countries that bust the 3 per cent deficit limit during times of economic stagnation to devote the bulk of any rise in future tax receipts linked to an economic upswing to deficit reduction.