France given two extra years to reach deficit targets

The European Commission yesterday urged France to accelerate the implementation of structural reforms, as the commission confirmed that France would be given two extra years to reach its budget deficit targets following meetings between French president François Hollande and the European Commission in Brussels.

The much anticipated visit of the French president to Brussels, which took place exactly one year after Mr Hollande was sworn in as president, also coincided with the release of new economic data which showed that France has entered recession for the second time in four years.

Europe’s second largest economy shrank by 0.2 per cent in the first quarter of this year, following a similar pace of contraction in the last quarter of 2012. Two consecutive quarters of negative growth is typically interpreted as a signal that a country has entered recession.

Worst over
Speaking after a bilateral meeting with European commission president José Manuel Barroso and a working lunch with European commissioners, the French president said he believed the worst was over for France. "My view is that we've got past the most difficult moment," Mr Hollande said, adding that France was not an isolated case.

"There is a recession in France as there is in the whole of Europe. Are we an isolated case? No ... the recession in Europe is greater."

Mr Hollande said that France had already implemented a number of economic reforms, including a competitiveness pact with businesses, banking reform and reform of the labour market.

“We still have to carry out further reforms. Not because the European commission is asking us to do this, but because it is in our interest,” the French president said, specifically mentioning planned reform of the pensions sector.

But Mr Barroso warned that France must use the extra two years it has been given to bring its budget deficit to below 3 per cent of gross domestic product (GDP), to accelerate structural reforms.

“The French economy needs to make up its lost competitiveness if it is to create growth and employment,” he said.

“There is a problem of competitiveness in France even compared to its European partners.”

Earlier this month, European economic and monetary affairs commissioner Olli Rehn signalled he would grant France two extra years to reach its deficit-reduction target, after the commission predicted that France would enter recession this year and see its deficit rise from 3.9 per cent to 4.2 per cent.

The extension of the deadline was perceived by some as a softening of the European Union’s so-called austerity stance. Yesterday’s figures confirmed that France fell back into recession in the first quarter of the year. The national statistics agency, Insee, said that GDP fell 0.2 per cent in the first quarter of the year, though it revised upwards its data for the fourth quarter of last year, confirming that GDP fell 0.2 per cent in the last three months of 2012, compared to an initial estimate of -0.3 per cent.

First-quarter falls
Household consumption and production of goods and services both fell during the first quarter, according to Insee, with expenditure on manufactured goods, including cars, falling by 0.9 per cent.

Responding to the figures, France's finance minister, Pierre Moscovici, said the government maintained its projection that the economy would grow by 0.1 per cent this year.

“All of this must push us to have a European policy which goes for growth,” he said after a cabinet meeting ahead of Mr Hollande’s departure for Brussels.