France busts deficit limit

[Dinner]

The Chirac government has recently broken the Euro Zone's agreed upon deficit limit of 3% by posting a 3.4% deficit for this year and it appears likely France will post an even larger deficit next year. The European Growth & Stability pact was adopted to insure that the new Euro would become a strong currency like the German Mark and not sink down to the pathetic level other European national currencies, such as the Italian Lire, once held.

The irresponsibility of the French government exposes an inherent weakness of having a common currency shared by a number of sovereign states. If one country behaves incompetently then all the states will be harmed when the common currency gets hammered in the international currency markets. In the past both Germany and Portugal have broken the deficit limit but both acted quickly to reverse the trend (by cutting spending and raising taxes) while the French government seems to be categorically refusing to do anything meaningful to reduce its deficits.

What long term effects do you think this will have on the Euro and upon the European Union? Is there a powerful enough mechanism in the EU to force France to reign in its irresponsible spending or will the eurocrates be unable to stop Chirac’s spending binge?

Here’s the complete BBC article

[Starchild]

The Growth and Stability Pact itself needs to be redrawn to recognise that budgets shouldn't necessarily balance over the short term but need to balance over the entire economic cycle. Or something else vaguely Gorden Brown-esque.

[DuncanK]

Starchild is right. The whole world economy is looking bad right now. Every nation is going to have either large deficits for the whole decade, huge tax increases, or huge spending cuts. I don't think there will be any consequences for France.

[Dinner]

Since Brussels doesn't have any really control over how much the member countries spend the eurocrates may find themselves in a position where the value of the Euro is failing through the floor and they can't stop it because they can't control the deficits of countries like France.

The Germans forced the issue of deficit limits into the Growth & Stability pact just to prevent such a scenario from occurring but now it appears the precautions are failing apart and the value of the Euro will now be less secure. That doesn't mean the Euro is going to immediately go into free fail but it does mean the Euro has now lost the only institutional block which prevents that from happening.

[Dinner]

I must profess I am surprised more of you Euros aren't concerned. The Chirac administration is putting the common currency in jeaperdy, not dire jeaperdy but still the threat is there, just so he can avoid making tough political choices about taxes and/or spending cuts. Doesn't that bother you in the slightest?

[CerberusIV]

Even Gordon Brown appears keen to renegotiate this bit of the Euro rules. Apparently he is looking for something which will allow some flexibility over an economic cycle of several years.

The likelihood is that the rules will be changed. The only question is who will have the most influence over what is adopted.

[DuncanK]

The thing is that tax increases and spending cuts would be just as bad for Europe rigth now as a weak Euro.

[Odin]

That is what happens when a nationalistic, Degaulle-like wacko (Chirac) is in control of France. Time to bring the 5th Republic down! Bring in the 6th Republic!

[Stefu]

Or the Third (or is it Fourth?) Empire!

[Lefty Scaevola]

They do not even have a large military or wars to support. Why should they run deficit?

[DuncanK]

I now that the French and German presidents want to cut taxes, but I doubt if that will happen. I think there are planned tax cuts in France, but they have been put on hold.

[DuncanK]

Originally posted by Lefty Scaevola
They do not even have a large military or wars to support. Why should they run deficit?

The French have 300,000 peacekeepers in the Ivory Coast, but I don't know if that is costing them more than usual.

[Ted Striker]

Originally posted by DuncanK


The French have 300,000 peacekeepers in the Ivory Coast, but I don't know if that is costing them more than usual.

Correction: Imperialist war-mongering War for Chocolatiers

[DuncanK]

Here's a link concerning proposal for the rules reform for budgets

http://news.bbc.co.uk/2/hi/business/2520777.stm

[Timexwatch]

Chirac being forced to cut public services would be the best thing to happen to the U.S. war effort