Sarkozy announces EU economic government

French finance minister Nicolas Sarkozy has announced EU finance chiefs will create an informal "economic government" to align European finances.

"There is a need for economic governance in Europe", he told journalists in Paris on Tuesday.

"I will be working informally with my EU colleagues to form an economic government that will exchange information on each others stability programmes, take similar economic action and commit to converging our fiscal policy.

"We must follow through our European logic."

In a thinly veiled plea for leniency over France's soaring deficit, Sarkozy voiced his support for moves by the European Commission to make the EU stability pact - which controls government spending - more flexible.

"We need a stability pact but it must be more flexible and in line with each member state's responsibilities," he insisted.

"A small country with a few thousand inhabitants does not have the same constraints as a large one like ours, like defence and security for example."

France must reform its health system as a matter of urgency if it is to meet its EU commitment to slashing deficit, the minister said.

Paris' target to bring deficit - the amount spending exceeds income - below the Brussels limit next year will only be "possible" if its health insurance system is reformed quickly and in a "structural" way.

But Sarkozy gave vague assurances that France would attempt to follow the lead of "several of our EU partners" and bring deficit down to below three per cent of GDP.

"We must stabilise public debt...that's my target for 2006", he insisted, adding, "the rule of a zero increase in spending is also a target for 2005."

Spending in France has resulted in unbalanced finances for the past three years.

In November, former finance minister Francis Mer committed Paris to cutting its deficit to 2.9 per cent of GDP next year.

But recent statistics leaked to the French press showed deficit is likely to come in at four per cent in 2005 despite assurances from the French finance ministry that it will toe the deficit line.

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