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14 May 2003

EZA 529 France-Economy




France excessive deficit procedure conflicts with budget priorities; likely to backfire on Brussels, SGP
The decision of the European Commission to recommend an excessive deficit procedure against France — alongside Germany and Portugal — under Stability and Growth Pact (SGP) rules is highly likely to backfire. Partly because of the shock of last year's presidential-election support surge for the radical right, President Jacques Chirac is determined to ensure that the government of Prime Minister Jean Pierre Raffarin instigates policies oriented toward growth, and has the support of the bulk of the French electorate. French domestic political priorities thus conflict directly with Brussels' injunction to cut spending. Since demand is Europe's economic problem and the thrust of European Commission initiatives are pro-cyclical in the hardest downturn of the last 50 years, political hardball from Brussels will, in our view, only undermine the remnants of the SGP that remain. However yesterday's union protests against pension reforms will be closely watched not only by Brussels but by governments and unions in Germany and Italy in particular. We expect Paris to keep momentum in much-needed alterations to old-age care arrangements.

SummaryAsset Conclusions: Conflict between French domestic political objectives, EC's budget rules has potential to undermine SGP further, EU policy mix.

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© Graham Bishop

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