(Adds Almunia news conference, comments on Italy, Portugal,
Slovakia, Czech Republic and Britain; French reaction)
By Jan Strupczewski
BRUSSELS, April 28 (Reuters) - France's budget gap will grow
this year and hit the European Union's ceiling of 3 percent of
GDP in 2009 unless policies change, raising a clear case for a
warning from Brussels, the European Commission said on Monday.
"France is once again moving dangerously close to the
reference value ... That is a clear case to consider using the
instruments that are in our hand for such cases," EU Monetary
Affairs Commissioner Joaquin Almunia told a news conference.
If the European Commission considers that French budget
policy is heading in the wrong direction and could lead to a
breach of the 3 percent deficit limit, it could issue a
politically embarrassing "early warning" to Paris.
Almunia earlier unveiled economic forecasts that put the
French deficit at 2.9 percent of gross domestic product this
year and 3.0 percent in 2009 after rising to 2.7 percent in 2007
from 2.4 percent the year before.
The slightest deviation from the path forecast by the
Commission would take France over the limit, he added,
presenting the Commission's twice-yearly economic forecasts for
the 27-nation European Union.
The French gap is expected to widen because the country's
economic growth is likely to slow to 1.6 percent this year from
1.9 percent in 2007 and to 1.4 percent in 2009, the forecasts
showed.
With a 3 percent deficit in 2009, France would be the worst
performer in terms of budget discipline in the euro zone.
France itself expects its deficit to ease to 2.5 percent
this year and fall further to 2.0 percent in 2009. Even so, this
is still above the 1.7 percent deficit pledge that Paris made to
Brussels last November.
France has forecast annual economic growth of about 2.5
percent between 2009 and 2012 in its long-term budget plans
submitted to the European Commission.
France defended its public deficit forecasts.
"We don't think the Commission's forecasts take into account
the one-off nature of some of the elements of the 2007 deficit,"
a French Finance Ministry official told Reuters when asked about
the updated Commission forecasts.
"Our objective for 2008 remains 2.5 percent (of gross
domestic product) and remains achievable," the official said.
EU finance ministers ended disciplinary budget steps against
Paris only last year after France brought its budget deficit
below the EU threshold in 2005.
But after President Nicolas Sarkozy came to power in 2007,
France backtracked on an earlier target agreed by all euro zone
finance ministers to balance their books by 2010 at the latest
and Paris is now aiming for 2012.
ITALY WITHIN LIMITS
Italy's shortfall would widen too, although by less than in
France and it should stay well below the ceiling, the EU
executive arm said.
Italy brought its budget gap below 3 percent last year and
the Commission expects it to stay within EU limits this year and
in 2009. Therefore, Brussels will propose ending the
disciplinary budget steps against Italy on May 7, Almunia said.
He said the new Italian government should focus on cutting
debt and boosting productivity.
It will also end steps against Portugal whose budget deficit
will likewise stay below 3 percent, according to the
Commission's forecasts, although Almunia called on Lisbon to
continue cutting the gap in 2009.
The euro zone's overall budget deficit would increase to 1
percent of gross domestic product this year from 0.6 percent
last year and widen further to 1.1 percent in 2009 as the
economy slows and governments raise less cash in taxes.
Almunia also said he would propose ending excessive deficit
procedures against Slovakia and the Czech Republic on May 7 and
against Poland on June 11.
Almunia said, however, that also on June 11 he would propose
to start new disciplinary steps against Britain, because the
Commission expects the country's budget gap to breach 3 percent
this year and next.
(Additional reporting by Paul Taylor in Brussels and Swaha
Pattanaik in Paris; Editing by William Schomberg and Dale
Hudson)
