France set to miss its deficit targets

France is braced for a new round of spending cuts after ministers admitted the government was likely to miss its deficit targets.

President François Hollande has pinned his government’s credibility on meeting promises to EU partners to end France’s 35-year record of deficits and cut its heavy debt. The Élysée Palace had insisted until this week that it remained on track to reduce the nominal deficit to 3 per cent of GDP this year, but a bleak assessment from the state auditor has cast doubts on the government’s ability to fulfil the pledge.

Projections

In its annual report, the Court of Auditors said overly optimistic growth projections and a likely shortfall in tax receipts meant the 2013 deficit target had “little chance of being met”.

The court said France had significantly reduced its structural deficit in 2012, but its position remained “worse than the average in the euro zone, particularly compared to Germany”.

The report prompted senior ministers to concede for the first time that France could miss its target. “I think it’s likely and that means we must both avoid squeezing what remains of growth while being responsible and making sure the word ‘savings’ is part of our vocabulary,” foreign minister Laurent Fabius said yesterday.

Finance minister Pierre Moscovici said there was no change in the government’s goal of 0.8 per cent economic growth in 2013 and a nominal deficit of 3 per cent of GDP.

However he admitted the growth target would be difficult and said the socialist government would examine if it needed to re-evaluate its goals in late March, following the publication of the European Commission’s new economic outlook.

Mr Hollande’s government has already made an unprecedented €38 billion in savings this year, however the watchdog said deeper spending reductions would be needed.

It urged the EU to make clear how it would judge member states’ deficit-cutting efforts, the most explicit call to date for Brussels to clarify how it would react to France overshooting its budget targets.