The European Commission was forced to concede that France now
looked certain to break the stability and growth pact's 3 per cent
deficit limit for a third successive year in 2004.
Senior Commission officials privately admit there is little they
can do to force France to toe the line, raising the question of
whether any country will ever be sanctioned for breaking the
Although the stability pact - which underpins the euro - will
continue, France's flouting of the once-feared rules has left the
pact looking like a paper tiger.
European Commission officials now face the humiliating task of
identifying "special circumstances" to explain why they are not
prepared to impose fines on the French government - the ultimate
sanction allowed under the pact.
There is widespread acceptance in Brussels that it is neither
economically or politically possible for the Commission to apply
sanctions to one of Europe's most powerful member states.
"We have to take into account the economic viability of our
recommendations," said one senior Commission official.
He said that if Brussels ordered France to comply with the pact
in 2004 it would require a "huge" cut in spending, equivalent to
more than 1.5 per cent of gross domestic product.
Politically the Commission is under significant pressure to apply
the pact "flexibly", even if that means the iron discipline once
envisaged is effectively being discarded.
France intends to tell eurozone finance ministers on Monday that
it is suffering from "exceptional circumstances" and is reining in
its budget deficit, even if it is not doing enough to bring it below
the 3 per cent line.
French officials say the weak state of the European economy is
the reason why the country has failed to meet the terms of the
stability and growth pact.
They count on the support of Germany - also likely to break the
pact for a third successive year in 2004 - Italy and the UK,
although Britain is outside the eurozone.
Spain, once one of the most vehement defenders of the pact, also
appears to be backing down.
Paris maintains that this year's expected deficit of 4 per cent
of GDP should fall to 3.6 per cent in 2004.
It says that it is not possible to carry out the €10bn ($11.7bn,
£7bn) of spending cuts needed to bring the deficit into line.
The Commission will now propose new recommendations for France to
ensure that its deficit is below 3 per cent in 2005. Additional
reporting by Hugh Williamson in Berlin