Insult to Injury

13 October 2003


France Faces EU Fine for Budget Excess

The European Union's Growth and Stability Pact, designed when the economies of Europe seemed to be on track for perpetual inflationless growth, has created an interesting dilemma. France, the eurozone's second largest economy, is currently in violation of the limit on budget deficits (3% of GDP), was in violation in 2002 and is expected to be in violation in 2004. The punishment, though, is a fine -- making the situation worse.

The French economy has been misfiring for quarter after quarter, and with a hot summer, agriculture is likely to suffer. Indeed, the wine grapes may not be plentiful enough to help that sector. a strong franc relative to the dollar makes exports outside Europe difficult, while Germany also is having a rough time. There is a sense in France that there isn't much on the horizon that is going to help.

The GSP was designed to fight inflation, harmonize the economies of Europe and support the appeal of the then-unlaunched euro. Inflation in Europe would be welcome now, the economies are about as harmonized as they can get without a common central government, and the euro has been used successfully for three years now. The GSP can certainly be thrown on the scrap heap of history.

But it won't be. Eurocrats hate getting rid of anything that even faintly smells of success. Instead, the European Commission will draw up a list of recommendations, which could include a fine of billions of euros, that Europe's finance ministers can discuss at their next meeting on 4 November. While some of the smaller countries that have kept to the limits regardless of the pain would like to see France suffer, that would not be the best thing for anyone.

Instead, letting France slide by until it gets its economy up and running is a better move. In a sense, this is justice. The French will have a hard enough time doing that, and there is no reason for the smaller economies that are tied to France and Germany's to suffer any more than they are by prolonging France's problems in some odd attempt at correcting behavior. Just because the French government has been inept at home and abroad, there is no reason for Belgians, Dutch and Portuguese consumers and businesses to suffer.

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