Eurogroup to press Sarkozy for structural reforms

Eurogroup finance ministers and the European Commission will urge French President Nicolas Sarkozy to commit to real structural economic reforms when he outlines his budget plans to them on Monday, EU sources said.
The sources said they did not expect a confrontation with the new French leader, who has vowed to postpone balancing the budget to 2012 from the agreed EU date of 2010 to pursue growth-promoting measures.
But they said there would be pressure to be more specific about planned reforms, because some of the steps announced so far appeared to be tax breaks to please voter groups rather than genuine structural measures.
One well-placed source said ministers were likely to ask France to come back with more detailed plans in September, before it puts its 2008 budget to parliament in October.
A spokeswoman for EU Economic and Monetary Affairs Commissioner Joaquin Almunia confirmed on Friday that the European Commission had no legal power to make France change its budget plans.
"The Commission cannot take France to court," she told a news briefing. An official of the Portuguese EU presidency also said it was a political discussion, not a legal issue.
Revised EU budget rules do offer some leeway in deficit-cutting for countries that are pursuing structural reforms likely to boost their potential growth and reduce the long-term burden on public finances.
Under the rules, a country should not only keep its budget deficit below the EU's ceiling of 3 percent of gross domestic product, but also cut it by at least 0.5 point a year in good economic times to achieve a balance. Ministers from the Eurogroup of countries using the euro currency agreed in April that all member states should achieve the balance in 2010.
The EU source said more than half of the new fiscal measures announced so far by Sarkozy's government at an estimated cost of 0.6 percent of GDP, could not be categorised as structural reforms.
The most expensive measure is a tax break on mortgage interest for home-buyers, expected to cost 0.3 percent of GDP, which is not a policy recommended by the EU, the source said. The same was true of changes in inheritance tax expected to cost 0.1 percent of GDP.
Only tax breaks to encourage longer working hours and a decision not to replace one in two civil servants who retire next year could be considered real structural reforms, the source said. "So it's not as if (Sarkozy) is coming with a sterling reform package," the source said. "He still has a lot of detail to give on the reform package."
The sources also said ministers would urge France to obey its own calls for closer economic policy co-ordination within the 13-country eurozone by consulting its partners on measures before announcing them to the public.
Germany, which in an unpopular move increased its value-added tax this year to comply with EU budget rules, has voiced unease about the fiscal plans of France, its traditional ally in the bloc. On Thursday, the European Central Bank urged all eurozone countries to stick to their budget pledges.