Merkel says France and Italy must do more on reforms

BERLIN (Reuters) - German Chancellor Angela Merkel said in a newspaper interview on Sunday that both France and Italy needed to do more on the reform front to ensure that their 2015 budgets respected European Union fiscal rules.

Last month, the European Commission postponed until March a decision on whether the budgets of both countries conformed with EU rules, while making clear that France was at risk of "non-compliance".

Unless further steps are taken by the new deadline, the Commission could fine France for falling short of its deficit-cutting obligations and put Italy under a disciplinary process because of its debt levels.

Merkel, in an interview with German daily Die Welt, said giving France and Italy more time to finalise their reform plans was defensible.

But she then added: "The Commission has made clear that what has been put on the table so far is insufficient. I would agree with this."

Last year, the Commission won new powers to assess draft national budgets to ensure they are in line with EU agreements.

But insisting that countries introduce additional reforms remains politically sensitive.

French Finance Minister Michel Sapin said last week during a visit to Berlin that France would do what was necessary to meet its EU obligations but that boosting growth had to be the top priority.

A day later, he announced that France was aiming to cut its deficit to 4.1 percent of gross domestic product (GDP) in 2015, compared to a previous goal of 4.3 percent, thanks to extra savings.

France initially pledged to bring its deficit down to the EU limit of 3 percent by 2013 but has now acknowledged that it won't reach that threshold until 2017.

(Reporting by Noah Barkin)