By Jan Strupczewski and Ingrid Melander
BRUSSELS (Reuters) - European Union finance ministers gave France two more years on Tuesday to cut its budget deficit to within EU limits, extending the deadline for the third time since 2009 as Paris struggles to enact reforms.
The euro zone's second biggest economy has repeatedly missed deadlines and budget consolidation targets and, under EU budget rules sharpened during the sovereign debt crisis, was facing fines of up to 4 billion euros (2.85 billion pounds) by late last year.
But the European Commission, which prepares the ministers' decision, recommended an extension of the deadline to 2017 from 2015 to give Paris more time to implement reforms and cut spending at a time of weak economic growth and low inflation.
"The two-year extension in the excessive deficit procedure for France is approved," an EU official said.
The Commission recommendation sparked controversy among some smaller euro zone countries and within the Commission itself, because many policy-makers see it as undermining the credibility of the rules set out in the EU's Stability and Growth Pact.
European Central Bank Executive Board Member Benoit Coeure told the Financial Times the euro zone should not create a perception that it was unravelling its own rules or that laws were applied differently for big and small countries.
"We would not create trust in the euro zone if we were to create the perception that what has already been decided is being unravelled," Coeure told the paper.
"It is always extremely important... to avoid a situation, or even to avoid a perception, that large countries are treated in a more benevolent way ... than smaller countries," he said.
But the euro zone's economic powerhouse Germany is quietly backing the lenient approach to France so as not to further weaken already unpopular French President Francois Hollande.
The recommendation was initially discussed at a meeting of euro zone finance ministers on Monday, where it triggered a discussion on the application of EU budget rules. It was formally approved by all 28 EU ministers on Tuesday.
In a statement on Monday, the euro zone finance ministers said France must do more to comply with the rules and that they expect Paris to deliver on a promise to cut its structural deficit by an additional 0.2 percent of GDP in 2015.
That would take the overall reduction this year in the structural deficit, which strips out the effects of the economic cycle, to the minimum 0.5 percent required by the EU.
French Finance Minister Michel Sapin, speaking to reporters, reiterated France's commitment to meet this year's structural deficit target and to take more measures to do so, blaming the below-target consolidation so far on very low inflation.
Sapin, who has said in the past that France deserved special treatment because of its size, said Paris was working hard to respect the rules.
"We've done a good job … We have a good trajectory now. It has been about dialogue with Europe. Europe is there to help us. It is not there to punish us," he said after the meeting.
