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France announces plan to cut deficit by 2014

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France announces plan to cut deficit by 2014
File photo of France's Minister of Finance Pierre Moscovici. Photo: Besoin de Gauche/Flickr
14:18 CEST+02:00
France announced a plan on Wednesday to bring its public deficit below the EU limit of 3.0 percent of GDP by 2014, one year later than expected. The project involves higher taxes, and finding savings in France's extensive social security system.

The programme was released by the finance ministry and is based on what the government termed a "realistic" economic growth forecast of 0.1 percent this year and 1.2 percent in 2014, which it maintained would allow the public deficit to be cut to 2.9 percent of output next year.

The growth forecasts have been questioned, however, by both the International Monetary Fund and a new French high council for public finances, with the IMF forecasting on Tuesday that the French economy would contract by 0.1 percent this year before expanding by a slight 0.3 percent in 2014.

France was initially to have cut the deficit to 3.0 percent of gross domestic product already this year, but has asked for more time, owing to weak growth which has pushed the revised estimated 2013 figure up to 3.7 percent of GDP.

Under EU rules, Eurozone members are expected to run public deficits of no more than 3.0 percent of GDP, and are supposed to work towards a balance, or even a surplus in times of economic growth.

The government has now pledged to bring the deficit down to 2.9 percent next year, but President François Hollande has already ruled out sharper spending cuts to reach the target this year.

Under the "stability programme" unveiled on Wednesday, public debt is expected to reach a record peak of 94.3 percent of GDP in 2014 before beginning to decline a year later than initially planned.

The European Commission will have a chance to vet the French plan once French lawmakers have approved it.

But Olli Rehn, the European Union's economy and euro commissioner, has already said that France could be given more time to meet its commitments, as has been the case for Spain and others during the eurozone's three-year debt crisis.

Although the government has vowed to keep social charges at stable levels in 2014, the overall tax burden is forecast to increase to 46.3 percent of GDP this year, while public spending is expected to edge up to 56.9 percent.

Savings of €1 billion are foreseen in the national social security system in 2014.

Meanwhile, the government forecast that unemployment would begin to decline in the fourth quarter of 2013, after Hollande pledged to curb the steadily rising rate by the end of the year.

In the last quarter of 2012, French unemployment stood at 10.6 percent of the workforce, but the IMF expects it to rise to 11.2 percent this year and to 11.6 percent in 2014.

The stability programme will be sent to parliament for debate on April 23-24th and then to the European Commission at the end of the month.

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