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UPDATE 1-France says EU contributions under pressure

Published 08/27/2009, 01:50 PM
Updated 08/27/2009, 01:54 PM

(Adds quotes, background, details)

By James Mackenzie

PARIS, Aug 27 (Reuters) - France's ability to remain one of the top net contributors to the European Union budget is coming under growing strain from its mounting debt burden, Prime Minister Francois Fillon said on Thursday.

Speaking at an annual gathering of French ambassadors, Fillon noted that France paid 19 billion euros ($27.05 billion) into EU finances every year and got 14 billion back, including farm subsidies.

"This bookkeeper's vision of Europe is of course only a partial aspect of France's 'European account'," Fillon said.

"But our partners should understand that this position as a top net contributor -- with Germany -- will not be able to resist current tensions in public finances forever," he said.

Fillon's comments echo regular German complaints over the burden of being the EU's top net budget contributor.

But at the same time, he also called for a "true common strategy to get out of the crisis, which is something that has been lacking up to now."

"Our companies are still waiting for a real European response to several key questions," he said, citing issues including green development and helping sectors like chemicals and electronics to adapt to change.

"It is vital that the commission initiates a major policy of investment in the future," he said.

Next year, European governments are due to start the drawn out process of overhauling the EU's 133-billion-euro annual budget, which must be agreed before the end of the current long-term budget in 2013.

France's public deficit is expected to come in at up to 7.5 percent of gross domestic product this year -- more than twice normal EU borrowing limits -- as tax revenues have collapsed in the recession and spending on stimulus measures has soared.

The public debt, which amounted to about 1.4 trillion euros at the end of the first quarter, is expected to be equivalent to 77 percent of GDP by the end of the year and 88 percent in 2012.

Normal rules on deficit limits have been abandoned as governments have poured billions into keeping the ailing financial system on its feet and propping up demand.

French President Nicolas Sarkozy has been one of the loudest proponents of setting normal limits aside to ensure the economy keeps functioning in the crisis.

But Fillon warned that the debt situation was "serious" with debt levels in the 10 richest countries of the Group of 20 nations rising from 78 percent of GDP in 2008 to nearly 100 percent this year.

"It is indispensable that EU authorities and member states create a joint programme of re-establishing public finances to protect Europe from the risks of a public debt spiral," he said.

France and Germany, which was notably more reluctant to drop the orthodox commitment to budget discipline in order to stoke the economy, should "overcome their apparent differences in sensibility" to set a lead for the EU as a whole, he said. (Editing by Andy Bruce) ($1=.7024 Euro)

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