France to blow off EU debt limits until 2017

Setting the stage for a possible conflict with Brussels and Berlin, France said on Wednesday it's putting off deficit reduction targets for two years. The delay comes as France struggles with a flat economy and political instability.

Crisis-wracked France on Wednesday pushed back its target to hit EU deficit rules by two years, putting the eurozone's second-biggest economy on a fresh collision course with Brussels.

Finance Minister Michel Sapin said Paris would not get its ballooning budget deficit down to the EU limit of three percent of gross domestic product (GDP) until 2017, when the next French presidential election is expected to
take place.

France had promised Brussels it would return to three percent next year, but Sapin said the deficit in 2015 would come in at 4.3 percent — a far cry from the maximum permitted.

For this year, Sapin said the deficit would be 4.4 percent of GDP.

France has already twice asked for more time to get its deficit below the three percent maximum.

The European Commission said it was "evident" the revised deficit goals were not in line with what had been agreed in Brussels.

"While the Commission will — as always — make full use of the flexibility foreseen by the (EU's Stability and Growth) Pact, it is essential that the credibility of our fiscal rules be upheld and thus that the Pact be fully
respected," said Simon O'Connor, a commission spokesman.

France is due to submit a draft 2015 budget for review in Brussels next month, and this "should clearly specify credible measures," he added.

The repeated delays in budgetary consolidation are also likely to be viewed with concern in Germany, which has spearheaded a drive to tackle fiscal red ink.

Chancellor Angela Merkel said pointedly earlier Wednesday: "Keeping to our incurred commitments in Europe, especially in the eurozone, must, unlike in the past, finally become the hallmark of the eurozone."

'Exceptional situation'

Sapin blamed an "exceptional situation" in the eurozone which he said was "marked by a very weak economy combined with a slowdown in inflation that no one predicted."

This was a clear message to Brussels, which allows countries to delay their budgetary targets in "exceptional" economic circumstances.

He stressed however that "we are not asking for a change in the European rules, we are not asking for them to be suspended, nor for any exception."

Hours later, Pierre Moscovici — France's former finance minister — was named EU economics commissioner, with power over member states' budgets.

Sapin also revealed that growth this year would be a sluggish 0.4 percent, following two quarters during which the economy stagnated completely.

Officially, Paris was banking on a growth rate of one percent this year, but Sapin had already admitted this was too bullish and predicted last month the economy would grow by "around 0.5 percent."

The French economy is seen recovering slightly next year, with 1.0 percent growth, Sapin said, although this was a significant downwards revision from a previous forecast of 1.7 percent.

'Responsibility Pact'

As well as running the risk of infuriating Brussels, the new forecasts are likely to increase pressure on French President François Hollande, already at historic lows in opinion polls.

The embattled leader promised to bring unemployment down but has in fact seen the jobless lines grow to record lengths as economic growth has almost ground to a halt.

Hollande's controversial plan to get the French economy going again, the Responsibility Pact, will see companies offered €40 billion ($52 billion) in tax breaks over the next three years in return for a pledge to create
500,000 jobs.

In a bid to balance the books, this will go hand-in-hand with €50 billion in public spending cuts, which Sapin vowed to implement "until the end."

On Wednesday, Labour Minister Francois Rebsamen brought together representatives from 50 sectors of the economy to urge them to "go quicker" to create employment, as critics said companies were taking advantage of the tax
breaks without giving out jobs in return.

The Responsibility Pact sparked a political crisis last month when Hollande was forced to sack his left-wing economy minister Arnaud Montebourg who criticized the policy as being too business-friendly and too focused on
German-led austerity principles.

Freed from the shackles of ministerial office, Montebourg continued his sniping at French policy, saying Wednesday: "The truth is that the French voted for a left-wing government and they got the policies of the German
conservatives" led by Chancellor Angela Merkel.

Sapin however reaffirmed a pledge to cut 21 billion euros of public spending next year, despite telling AFP last week that "we cannot have the same targets with an inflation that is becoming very low."

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Paris, Berlin agree on future eurozone budget: French ministry source

France and Germany have agreed on the broad outlines of a proposed eurozone budget which they will present to EU finance ministers in Brussels on Monday, a French finance ministry source said.

Paris, Berlin agree on future eurozone budget: French ministry source
French Economy and Finance Minister Bruno Le Maire (R) and German Finance Minister and Vice-Chancellor Olaf Scholz. File photo: AFP

The common single-currency budget was one of French President Emmanuel Macron's key ideas for protecting the euro, but it caused differences between France and Germany, the region's two largest economies.

French Finance Minister Bruno Le Maire and Germany's minister, Olaf Scholz, will “jointly present a proposition on Monday… about the layout for a budget for the eurozone,” the ministry source told AFP.

“It's a major step forward,” the source said. “We will look forward to sharing with other members.”

The source said the amount of the budget has not been established as the proposal was to first set out the “architecture and main principles” of the budget.

According to a copy of the French-German proposal, the budget would be part of the EU budget structure and governed by the 19 euro members.

Macron will travel to Berlin at the weekend to meet with German Chancellor Angela Merkel where the two leaders will bolster their alliance as champions of a united Europe.

READ ALSO: France and Germany push for compromise on eurozone reform