France and Germany disappoint on deficit

Europe's two biggest economies are set to disappoint their own debt forecasts for 2003 and 2004, jeopardising promises to bring deficit within EU limits by next year.

Germany has informed the European Commission its public deficit for 2004 will hit 3.3 per cent rather than the 3.25 per cent previously forecast.

And Paris will tell the Brussels executive on Monday that its 2003 deficit slightly exceeded its official revised estimate of four per cent of GDP.

The announcements are likely to be met with disappointment in Brussels, as both countries are bound to bring their deficits under three per cent of GDP by 2005 after admitting they would breach the EU ceiling for three years in a row.

The commission already warned the French government in January that any shortfall in growth or debt would kill its chances of keeping deficit under three per cent next year.

And growth for 2003 has already come in way below expectations at 0.2 per cent, a ten-year low for the country, although French prime minister Jean-Pierre Raffarin insisted at the weekend that France will see two per cent growth in 2004.

All eyes will now be on France's outlook for its 2004 deficit which will be announced in the next few days.

If this forecast, officially set at 3.6 per cent, is revised downwards, the likelihood of meeting its 2005 goal will be even more remote.

All euro countries have to keep deficits under three per cent of GDP under the euro rules laid out in the  EU Stability and Growth Pact.

EU capitals voted to suspend the pact in November to allow France and Germany to escape economic sanctions, on the condition that if they did not come into line by 2005 they could be subject to economic sanctions.

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