Central bank tells government to respect EU rules

21st June 2005, Comments 0 comments

PARIS, June 21 (AFP) - The governor of the Bank of France, Christian Noyer, told the French government on Tuesday it was "crucial" that it respect EU and eurozone budget deficit rules.

PARIS, June 21 (AFP) - The governor of the Bank of France, Christian Noyer, told the French government on Tuesday it was "crucial" that it respect EU and eurozone budget deficit rules.

Noyer, who is also a member of the governing board of the European Central Bank, said in the Bank of France's annual report it was "crucial" that the French government reduce the public deficit to under the ceiling of 3.0 percent of gross domestic product as laid down by the 1997 Stability and Growth Pact.

"It is crucial that, in conformity with the commitments that it has taken, and under the rules of the stability pact, that the government enact measures enabling the public deficit to come back under 3.0 percent of gross domestic product in 2005," he said.

French Economy and Finance Minister Thierry Breton said on Tuesday that France was standing by its determination to hold the public deficit to 3.0 percent of output in 2005.

In 2004 the French public deficit amounted to 3.6 percent of output, the latest data from the French statistics institute INSEE showed.

Noyer said a persistent public deficit was one of three threats to the French economy, along with a deteriorating trade balance and a surge in housing prices.

"The overall growth in public spending is too strong," he said, adding that the trend could dampen growth.

Noyer also noted that French exports were increasing less rapidly in value than are those of its trading partners, such as Germany, at a time when French imports are on the rise.

Another source of concern was the real estate market, where prices for residential properties were escalating at a pace that could have "a major impact on rents and thus on the evolution of consumer prices".

Noyer described the European Central Bank's current policies as "extremely accommodating", despite repeated calls by eurozone political leaders for lower interest rates as a means of spurring growth.

"We have a crucial interest in ensuring that the extraordinarily accommodating financial conditions that we have today are not destabilised by questions about ECB strategy.

"For the moment we have no bias and have not signalled an intention one way or the other."

Noyer also defended reforms currently under way at the Bank of France.

"We have nothing to be ashamed of in the current pace at which we are restructuring and reforming," he insisted.

"If all public administrations were moving as rapidly toward restructuring, reform and cost reduction as the Bank of France the problem of the public deficit would have been resolved a long time ago."

The Bank, according to a program scheduled to run to the end of 2006, intends to reduce its 18,000-strong workforce by more than 5,000 and to close 115 of its 211 branches in France.

Copyright AFP

Subject: French news

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