The European Commission proposed on Wednesday to end disciplinary action against France over its excessive budget deficit, marking an end to a long dispute with Paris over fiscal policy.
The eurozone's second-biggest economy broke the EU's budget gap ceiling of 3 percent of gross domestic product in 2002, 2003 and 2004. The EU's deficit limit is designed to curb government borrowing and underpin the euro single currency.
An attempt by the Commission to step up disciplinary action against Paris was blocked in 2003 by France and Germany, which was also in breach of the deficit limit.
As a result, the EU's budget rules, the Stability and Growth Pact, had to be revised in 2005 to give budget deficit sinners more time to bring public finances in line with EU laws.
Paris cut the deficit to 2.9 percent of GDP last year and the Commission's latest forecasts showed the shortfall would diminish further to 2.7 percent this year, 2.6 percent in 2007 and 2.2 percent in 2008. "From an overall assessment, it follows that the excessive deficit situation in France has been corrected," the Commission said in a statement. "Accordingly, the Commission recommends to the council (of EU finance ministers) to abrogate its decision on the existence of an excessive deficit in France."
The EU's excessive deficit procedure can lead to fines if the 3 percent limit is repeatedly breached and EU finance ministers' requests to reduce the shortfall are ignored, but this has never happened yet. EU finance ministers are likely formally to adopt the Commission's recommendation at their meeting in January.
"The French case shows that budgetary consolidation undertaken with resolve can achieve important results in terms of deficit and debt," Economic and Monetary Affairs Commissioner Joaquin Almunia said. "I encourage France to pursue this route and reach its objective of restoring the public finances to balance by the end of the decade," Almunia said.
The Commission said while the reduction of the French deficit in 2005 below 3 percent was a result of substantial one-off revenues, the dependence of the 2006 result on such measures was limited and "negligible or zero thereafter". "This suggests that the deficit has been brought below the 3 percent of GDP ceiling in a credible and sustainable manner," the Commission said.
With the ending of the procedure against France, there will still be 10 EU countries in breach of the EU's budget rules: the Czech Republic, Germany, Greece, Italy, Hungary, Malta, Poland, Portugal, Slovakia and Britain.
Their deadlines for cutting the deficits range between 2006 and 2008. The Commission forecast earlier this month that five of these countries should bring their deficits below 3 percent this year, and the euro area average deficit would fall to 2.0 percent of GDP from 2.4 percent in 2005.