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France battling in vain to hit EU deficit target

France's public deficit would probably amount to 3.7 percent of national output this year, President François Hollande admitted on Tuesday, publicly renouncing his government's goal of coming in below the EU limit of three percent.

France battling in vain to hit EU deficit target

"The public deficit in 2011 reached more than five percent of national wealth, it was 4.5 percent at the end of 2012 and will probably be 3.7 percent in 2013, even if we are trying to make it less," Hollande acknowledged during a visit to Dijon.

Hollande said his government had made an "unprecedented" effort to battle the deficit, adding: "The best economic strategy is to stay on this course and do nothing that could weaken growth.

"Rebalancing accounts is a financial and moral obligation, but it is also an obligation for our sovereignty because France must never be in trouble on the markets," Hollande said.

He also noted that France currently has "the lowest interest rates in its history".

Earlier this month, the country's budget minister revealed France needs an extra €6 billion in revenues next year to plug a gaping hole in its coffers. The European Central Bank also said it had to act fast to cut spending and retain credibility after slashing the 2013 growth forecast.

Budget Minister Jerome Cahuzac told Europe 1 radio that France's "budgetary situation is such that we have to find €6 billion in extra receipts".

But he did not specify how this would be achieved saying taxes "are already very high in France". French ministries have been informed how much to cut spending in order for the government to generate €2 billion in savings this year.

"Economies in public spending are inevitable," Cahuzac said. "We have started to do it, we will continue to do it," he added.

Benoît Coeure, a Frenchman who sits on the managing board of the European Central Bank, said on Monday that Paris had to take strong action to convince its European Union partners that it was serious about keeping to the EU's deficit norms.

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ECONOMY

IMF urges France to step up spending reforms to rein in debt

The International Monetary Fund on Monday warned France that its public debt is "too high for comfort", calling on the nation to tackle the issue by stepping up spending reforms.

IMF urges France to step up spending reforms to rein in debt
'Yellow vests' protest in front of the stock exchange in Paris in opposition to Macron's policies. Photo: AFP
In a report outlining preliminary findings of its 2019 mission, the IMF said tax and labour market reforms had helped keep the economy resilient despite slowing growth.
   
But it urged the government of President Emmanuel Macron to find further ways to curb spending and to ensure the measures have public support, in a nation rocked by weekly anti-government “yellow vest” protests. 
   
“France's public debt is too high for comfort,” said the IMF mission's concluding statement.
   
“While there is no immediate risk, as the currently low interest rates suggest that higher debt can be sustained at this juncture, the elevated debt level provides little comfort from a medium and long-term perspective.”
 
French public debt rises above €2,000,000,000,000 Photo: AFP
 
The IMF noted that public debt has risen from around 20 percent of gross domestic product in the 1980s to close to 100 percent. 
   
“Additional spending reforms are needed to ensure that the ongoing tax-burden reduction can be sustained and public debt placed on a firm downward path,” the statement said. 
   
The IMF maintained its growth forecast for France at 1.3 percent this year, predicting it would “stabilise at around 1.5 percent in the medium term, predicated on a recovery of domestic and external demand and on gains from recent reforms”.
   
It added that while the current outlook is positive, “risks have risen”, citing global trade tensions, the uncertainty over Britain's exit from the European Union and “in France, erosion of support for necessary economic reforms among the general public”.
 
On coming to power in 2017, Macron immediately set about trimming the deficit to bring it in line with an EU limit of three percent of GDP, which the eurozone's second-biggest economy had persistently flouted for a decade.
   
In March the national statistics agency Insee said France's budget deficit fell to a 12-year low of 2.5 percent of GDP in 2018, a greater-than-expected decline achieved despite falling growth and purchasing power.
   
But the announcement came after months of yellow vest protests, sparked last November over plans to increase diesel prices and raise taxes on pensions. 
   
Macron announced a package of tax cuts and income top-ups worth 10 billion euros in December, following the first month of the protests.
   
And in April, the government announced new plans for fresh tax cuts, to be funded by axing corporate tax breaks, reducing public spending and introducing longer working hours.
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