Germany Spared Penalties for Breaching EU Deficit Limit

With an expected deficit of 3.8 percent in 2004, Germany is once again set to breach the eurozone's Stability and Growth Pact. But, according to Financial Times Deutschland, Berlin won't be facing a penalty, because the European Commission says it believes Germany is trying to stick to the eurozone's budgetary rules. France, meanwhile, has caused an outcry in Brussels by announcing fresh tax cuts despite already exceeding the permitted limit of 3 percent of gross domestic product for the third time running. French Prime Minister Jean-Pierre Raffarin recently called for greater flexibility in the way the EU's budgetary rules are applied and said his priorities lay with boosting growth in the French economy. But if the deficit does stay above the 3 percent level, France could face fines. Over the next few weeks, Brussels will have to assess whether France has done enough to contain its budget. Pedro Solbes, the commissioner responsible for economic and monetary affairs, may then have to propose sanctions against France by late October.