ECB head bemoans state of French finances
23 September 2007, PARIS (AFP) - European Central Bank head Jean-Claude Trichet said Sunday that France's public finances were in "very great difficulty" with the worst public spending to output ratio in the European Union.
23 September 2007
PARIS (AFP) - European Central Bank head Jean-Claude Trichet said Sunday that France's public finances were in "very great difficulty" with the worst public spending to output ratio in the European Union.
"I would say that French public finances are in very great difficulty," Trichet said in an interview on Europe 1 radio.
"In 2007, according to statistics from the European Commission, France will the country spending the most in public expenditure in relation to gross domestic product, not only within the eurozone but among the 27 members of the European Union."
"When you look at the figures it is worrying to see that the development of France's public finances has on average been significantly worse than that of other European countries."
France "has not been well managed for a long time" and "has enormous progress to make," said Trichet, himself a Frenchman and former governor of the French central bank, the Banque de France.
"The deficits of today weaken the economy, and our spending today will weigh on our children and on our grandchildren."
Trichet's comments came after French Prime Minister Francois Fillon had said on Friday that the French state was "in a state of bankruptcy" -- comments which Trichet said the prime minister was "right" to make.
Fillon had said on a visit to Corsica that France "has been in chronic deficit for 15 years ... and has never voted through a balanced budget in 25 years."
Since coming to power in May, French President Nicolas Sarkozy has caused alarm among Paris's eurozone partners for his plans to cut taxes in order to jumpstart economic growth -- plans that make much harder the goal of balancing France's budget.
Eurozone finance ministers committed in April to balance their budgets by 2010, but Sarkozy duly warned in July that this goal might not be achieved until 2012.
If the French deficit starts rising again, it could soon break an EU rule requiring fiscal shortfalls to be kept to less than three percent of output.
Sarkozy has also criticised the ECB for failing to cut interest rates to stimulate growth and for not doing enough to stop the strong rise in the euro, which has hurt eurozone exporters.
The comments have been angrily repudiated by the ECB, whose sole mandate is to keep inflation under control, and by France's EU partners such as Germany who want to defend the independence of the Frankfurt-based central bank from politicians.
Trichet also defended the ECB's actions during the turmoil caused worldwide by the default on "subprime" mortgages by US consumers -- loans that had been repackaged and sold worldwide in complex financial instruments.
The ECB had "taken the decisions that it had to" by pumping tens of billions of euros (dollars) to facilitate inter-bank lending in global money markets.
"I would not use the word crisis but a significant market correction, which includes moments where there is large volatility across all markets, a period which calls for decisions and which require everyone to be alert," he said.
"It is perhaps a bit early to draw definitive lessons ... but there will be lessons to be learned in all areas," Trichet said.
"Consequences will have to be drawn when it comes to transparency across all markets ... on (debt) rating agencies, on all non-regulated entities: the famous hedge funds, private equity funds, speculative funds, special vehicles," he said.
He denied that the ECB had "in any way encouraged speculation" -- as Sarkozy had charged -- but said that "those who took unwise risks should be punished and they have been because they are registering losses."
He said that foreign currency exchange problems could not be fixed with a "magic wand."
Subject: French news