France's budget is under the microscope

President Jacques Chirac had pledged to cut income taxes by 30% over five years.

The statement comes the day after France admitted its deficit in public finances was higher than the EU allows last year and is likely to break the rules again this year.

Mr Mer said that budgeted tax cuts this year would go ahead but that cuts promised for following years would depend on the strength of the economy.

The European Commission has already launched its procedure for dealing with countries which break the deficit rule.

Under the European Union's Growth and Stability Pact, the public finance deficit should not exceed more than 3% of the country's gross domestic product.

France's ballooning deficit is partly due to this year's freeze on taxes.

Hard line?

EU economic and monetary affairs commissioner Pedro Solbes decided on Thursday to open the EU's excessive deficit procedure against France, based on the 2002 figure.

Brussels has previously said it would fine countries who broke the 3% limit, although many economists believe further budget cuts would hammer Europe's economy just when the global downturn is weakening demand to a dangerous degree.

Germany and Portugal have both broken the barrier in the past, each being reprimanded in the process.

But France's transgression is seen by some officials as particularly bad, since both Germany and Portugal did their best to ensure its finances were within the Pact's limits the year after a breach.