France's public deficit set to test European limits

28th April 2008, Comments 0 comments

European Commission predicts France’s public finances are set to worsen more than the government’s prediction in 2009.

28 April 2008

BRUSSELS - France's public finances are set to worsen more than the government expects, with the deficit due to rise to an EU limit in 2009, the European Commission predicted Monday.

The deterioration in the French public accounts could put Paris on a collision course with the commission as France will take over the rotating EU presidency in July.

France's budget deficit is set to rise higher than the government has predicted, hitting 2.9 percent of gross domestic product (GDP) this year, the commission said in its spring Economic Forecast.

Next year, the shortfall in the French public accounts would widen to 3.0 percent - which is also the maximum allowed under EU rules.

While the forecasts were based on "the conventional assumption of unchanged polices," the commission warned that a deteriorating economic situation and an increase in social expenditures could pinch the state finances even further.

Anything over 3.0 percent and France will expose itself to EU procedures over excessive deficits, with first a series of recommendations on how to plug the hole and then later, the possibility of penalties.

France in late March revised upwards its own forecast for the public deficit this year to 2.5 percent of GDP.

However Paris is facing mounting pressure from its European partners to slash its total public deficit - which stood at EUR 1.2 trillion at end 2007 - as it prepares to take over the six-month presidency of the European Union in the second half of the year.

Paris has acknowledged it will be unable to balance its books by an agreed-upon eurozone target of 2010.

French President Nicolas Sarkozy last week said that France expected to balance its budget by 2012 through staff cuts in the public sector.

[AFP / Expatica]

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