Rise in French public debt a 'problematic trend'

2nd March 2005, Comments 0 comments

PARIS, March 2 (AFP) - The French public debt worsened in 2004, a sign of the country's poor long-term financial health as related interest payments will weigh for years on the public deficit.

PARIS, March 2 (AFP) - The French public debt worsened in 2004, a sign of the country's poor long-term financial health as related interest payments will weigh for years on the public deficit.

The debt breached the symbolic level of EUR 1 trillion (USD 1.3 trillion), at nearly 1.066 trillion, while its ratio to gross domestic product rose to 65.6 percent from 63.9 percent one year earlier.

France's public deficit meanwhile - which covers the national and regional budgets along with Social Security healthcare spending - came to 3.7 percent of GDP last year, down from 4.2 percent in 2003.

"The real concern is the debt, because a deficit can be trimmed pretty quickly, whereas debt is a dynamic that is harder to turn around," commented economist Emmanuel Ferry at the Exane brokerage group.

The debt to GDP ratio was again in excess of a 60-percent limit set down in the European Union's Stability and Growth Pact, which was designed to ensure financial discipline among EU member states.

Interest payments on the French debt now represent a major contribution to the public deficit.

The state paid EUR 47.2 billion in interest last year, a figure that accounted for 20 percent of the national budget, following payments of EUR 45.9 billion in 2003, EUR 46.2 billion in 2002 and EUR 45.9 billion in 2001.

Credit Agricole analyst Bruno Cavalier said the debt ratio was a measure that deserved to be "highlighted again because it would indicate if budget policies were sustainable".

For Ferry, the fact that it has "risen for the past few years shows there is a problematic trend in the public finances".

According to Laure Maillard at Ixis-CIB, "reversing the trend will take some work. We will have to wait until at least 2007 to see it begin to come down."

Since 2001 the overall debt has risen steadily from EUR 840.8 billion.

Ferry put the unrelenting trend down to "an accumulation of rising public deficits and weak economic growth since 2001".

Maillard said that "for the debt to decrease, the deficit will have to decrease considerably, in other words, the state will have to have less and less desire to borrow."

On Wednesday, the government said it aimed to bring the deficit down to 2.9 percent of GDP in 2005, the first time it would be below the stability pact's 3.0 percent limit since 2001.

But Cavalier noted the reduction would be modest and said a large part would come from one-time payments of EUR 1.6 billion to the state by the electric company EDF and nuclear group Gogema.

Turning to economic growth, Marc Touati of Natexis Banques Populaires estimated that "as long as it does not reach three percent, the vicious cycle of debt will continue, that is its weight as a function of GDP will not stop growing."

One bright spot, however, was low European interest rates that helped prevent the debt from growing even further.

"Without that, we would be in a crisis situation", similar to one seen in the late 1990s, Ferry said.

© AFP

Subject: French News

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