France’s socialist government yesterday outlined a slower timetable for reducing the public deficit, leaving little margin of error for compliance with EU rules next year.
The new government, headed by prime minister Manuel Valls, said the 2015 fiscal deficit would be equivalent to 3 per cent of gross domestic product – in line with the upper limit set by the EU but higher than its previous pledge of 2.8 per cent.
Softer target
The softer target was part of a fiscal programme for the final three years of François Hollande's presidency that Paris will present to Brussels for approval next month. Paris has twice been given more time by the European Commission to meet the 3 per cent deficit ceiling.
Michel Sapin, the new finance minister, said yesterday the deficit would fall to 2.2 per cent of GDP by 2016 and to 1.3 per cent by 2017 – against the previous forecast of 1.7 per cent and 1.2 per cent. Growth would be 1 per cent next year, rising to 2.25 per cent in 2016 and 2017.
Mr Sapin, who replaced Pierre Moscovici as finance minister this month in a shake-up following the Socialist party’s poor performance in local elections, said the programme was “coherent” and “responsible”.
But the laxer targets and higher growth forecasts will raise eyebrows in Brussels and among private sector economists. French governments have a record of delaying their targets on the basis that growth has proved weaker than forecast.
Several weaknesses
The high council of public finances, a group of public sector auditors and private sector economists, said the government's outlook "contains several weaknesses and is subject to various risks".
In an effort to recover economic growth, Mr Hollande has announced a “responsibility pact” with business to reduce taxes and unemployment – running at more than 10 per cent.
The embattled president, whose popularity is the lowest of any French president in the post-war period, has also vowed to introduce €50 billion of spending cuts over the next three years, €4 billion of which must go to a parliamentary vote by the summer.
Last week, Mr Valls said that some of those savings would come via a temporary freeze on welfare payments, as well as sustaining a freeze in civil servants’ pay. – (Copyright The Financial Times Limited 2014)