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France 'on course' to break public deficit limit

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France 'on course' to break public deficit limit
French economy needs growth of risks breaking limits set by EU. Photo: Images of money
08:17 CEST+02:00
There was more bad news for France on the economic front this week, when the country's own budget watchdog warned that public sector deficit is set to break a limit set by the EU last month. The watchdog said economic growth was now imperative.

France's public sector budget deficit may burst through the revised limit agreed with the EU just last month if growth does not pick up, the government budget watchdog warned on Thursday.

Spending watchdog the Cour des Comptes said that if the French economy fails to grow by the 0.1 percent forecast by the government -- as is now predicted by the European Commission and the IMF -- the public deficit could be as high as 4.1 percent of gross domestic product, well above agreed limits.

In March, President Francois Hollande acknowledged that France would not achieve its initial target of reducing the deficit to the EU ceiling of 3.0 percent of output in 2013, saying the new target was 3.7 percent.

The European Commission accepted this last month, saying France should now cut the public deficit to 3.9 percent of gross domestic product this year, then 3.6 percent in 2014 and 2.8 percent in 2015.

"Without a change to economic growth, the Cour identified risks to tax receipts which could represent, in an adverse scenario, up to €6 billion" said the head of the court, Didier Migaud.

French Prime Minister Jean-Marc Ayrault said that "unfortunately, in the absence of growth" the Cour des Comptes was correct to warn of a rise in the deficit.

"There is no slippage on spending, that is very important," said Ayrault. "Effectively, the Cour des Comptes noted that revenues are behind due essentially to a lack of growth."

Weak growth and public finances in France are of acute concern to the European Commission and to Germany which is the main powerhouse in the eurozone.

Despite the shortfall, Migaud advised against adopting budget adjustments midway through the year given the magnitude of the changes in public finances already in the 2013 budget.

The figures are also watched closely on nervous financial markets.

This week has seen government officials and opposition lawmakers argue about the magnitude of the shortfall in tax collection and its implication for public finances.

A senior lawmaker said the government was in the process of discussing the targets for the structural deficit.

The European Commission and INSEE now forecasts the French economy will contract by 0.1 percent this year, while the IMF is pencilling in a drop of 0.2 percent.

Separately, INSEE said household confidence fell in June to a new record low as worries increased about joblessness.

INSEE's composite index for household confidence dropped by one point to 78 in June, dropping below the July 2008 level at the depths of the global financial crisis.

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