Ministers to tackle France's deficit

Eurozone ministers will meet on Monday night for talks on how to deal with France's excessive budget deficit.

France has failed to keep to an October 3 deadline to take measures to bring its deficit in line with the EU's three per cent of GDP limit by next year.

Instead Paris insists deficit will reach four per cent of GDP this year and 3.6 per cent last year, possibly coming into line by 2005.

It is now up to the council of ministers, in line with the rules of the EU's stability and growth pact, to order France to implement specific deficit cutting measures, which it must do within one month of the October 3 deadline.

Though no formal decisions will be taken at the Eurogroup meeting on Monday evening, ministers are expected to discuss what measures France might be able to take, as failure to adopt the measures before early December could theoretically result in heavy fines.

Ministers will also consider Italy's 2004 budget, criticised last Thursday by economic commissioner Pedro Solbes for being too reliant on short term measures and not addressing Italy's debt problem.

Rome is not risking a breach of the three per cent deficit limit either this year or next year but its public debt is already in excess of the 60 per cent of GNP limit recommended by Brussels.

ECOFIN COUNCIL - ISD

Monday's meeting precedes the formal finance council of all finance ministers on Tuesday.

Top of their agenda will be the beleaguered Investment Services Directive, on which the Italian presidency is desperate to get political agreement so that the law can be agreed in April to conclude within this parliamentary term.

But an article obliging investment houses to pass via the stock exchange rather than matching trades with clients in-house has put delegations at loggerheads and it is far from certain that a deal will be reached on Tuesday.

UK, Scandinavian and Benelux countries supporting in-house trades, known as internalisation, are pitted against France and Italy who support complete transparency.

The European Parliament has already approved an amended version of the text which would mean stockbrokers could just be forced to publish smaller trades on the stock market, thereby protecting their bigger, institutional clientele.

But this may still be too much for governments supporting anglo saxon style investment banks and may not be enough to satisfy the others.

REDUCED VAT

Ministers will also cast their views on a Commission proposal on reduced rates of VAT which has also caused controversy as it would prevent the UK, Ireland and Luxembourg from imposing a zero rate on children's clothes but allow France to apply low rates to its huge restaurant industry.

Those countries imposing the 'super reduced' rate on kidswear have already said they will scupper any proposal preventing the rate as all tax directives are subject to unanimous approval.

But the Commission is under pressure to secure an agreement on VAT soon as a three-year experiment allowing reduced rates on labour intensive services expires at the end of this year.

This will put an end to France's five per cent VAT rate on restaurant and catering services as well as reduced rates on building work.

INITIATIVE FOR GROWTH

Finally, the council will tackle the Italian presidency's Initiative for Growth paper as well as improvements suggested by France and Germany.

The initiative involves increasing funds for transport networks and research and development via private investment, loans from the European Investment Bank and EU/national budgets.

Its aim is to keep to the EU's Lisbon agenda which foresees the EU becoming the most competitive economy by 2010.

• Previous article
• Next article