BELGIUM: French President Nicolas Sarkozy and euro zone finance ministers arrive in Brussels for Eurogroup meeting

France headed for a clash with other euro zone countries and the European Central Bank over its plans to backtrack on commitments and delay budget deficit cuts despite an economic upswing. French President Nicolas Sarkozy, who came to Brussels on Monday (July 9) for an unprecedented presentation of his economic plans to euro zone finance ministers and the European Central Bank (ECB), also saw no support for his complaints about a strong euro hurting French growth and jobs. All euro zone countries, including France, agreed in April in Berlin to balance their books by 2010. But Paris changed its mind after Sarkozy became president in May, and now wants a two-year delay to boost growth through various tax cuts. But Sarkozy told his cabinet on Monday that the previous French government had been over-hasty in agreeing to balance its books by 2010, government spokesman Laurent Wauquiez said. ''There are rules and rules left space for exceptions. So if you ask for exceptions, they must correspond to the rules,'' Eurogroup President Jean-Claude Juncker told reporters before the monthly meeting of the 13 euro zone ministers and ECB President Jean-Claude Trichet. ''I said already what I wanted to say. The stability Pact has to be respected of course. After having heard what we will hear, I will see what I say, depending of course on what I will hear,'' Trichet added. EU budget rules, the Stability and Growth Pact, say deficits cannot be higher than 3 percent of gross domestic product and should be cut by at least 5 percentage point a year during economic good times. The rules underpin the euro. Many euro zone officials want to see the pact respected after repeated breaches of the deficit ceiling by France and Germany forced its revision in 2005. Germany has made painful budget deficit cuts much more quickly than France and expects to tighten policy further. ''The European Central Bank takes its credibility and authority from its independence. It plays an important role for Germany. The independence of the German Central bank was a basis for the development of Germany. The same goes for the Stability Growth Pact. It gives us discipline and Germany was in favour of the Growth Stability Pact in 2005. So why should we start asking questions now," German Finance Minister Peer Steinbrueck said before entering the meeting. The Belgian, Dutch and Austrian finance ministers also stood by the 2010 deadline. The pact allows for slower deficit cuts if a country is implementing structural reforms, but EU sources said only part of the moves proposed by Sarkozy could be seen as such. The ministers may ask France to give more details in September.

ITN Source | July 10, 2007

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