Watchdog warns French deficit set to bust limit
France's public sector budget deficit may burst through the revised limit agreed with the EU just last month if growth does not pick up, the government budget watchdog warned on Thursday.
Spending watchdog the Cour des Comptes said that if the French economy fails to grow by the 0.1 percent forecast by the government -- as is now predicted by the European Commission, IMF and French statistics agency INSEE -- the public deficit could be 3.8-4.1 percent of gross domestic product (GDP).
In March, President Francois Hollande acknowledged that France would not achieve its initial target of reducing the deficit to the EU ceiling of 3.0 percent of output in 2013, saying the new target was 3.7 percent.
The European Commission agreed last month, saying France should cut the public deficit to 3.9 percent of gross domestic product this year, then 3.6 percent in 2014 and 2.8 percent in 2015.
"Without a change to economic growth, the Cour identified risks to tax receipts which could represent, in an adverse scenario, up to 6 billion euros ($7.8 billion), or 0.3 percentage points of GDP," said the head of the court, Didier Migaud.
He told the lawmakers that he believed the government had reached the halfway point in eliminating the structural deficit, which strips out the temporary effects of the slowdown on spending.
Migaud advised against adopting budget adjustments midway through the year given the magnitude of the changes in public finances already in the 2013 budget.
Weak growth and public finances in France are of acute concern to the European Commission and to Germany which is the main powerhouse in the eurozone.
The figures are also watched closely on nervous financial markets.
This week has seen government officials and opposition lawmakers argue about the magnitude of the shortfall in tax collection and its implication for public finances.
A senior lawmaker said the government was in the process of discussing the targets for the structural deficit.
The European Commission and INSEE now forecasts the French economy will contract by 0.1 percent this year, while the IMF is pencilling in a drop of 0.2 percent.
Separately, INSEE said household confidence fell in June to a new record low as worries increased about joblessness.
INSEE's composite index for household confidence dropped by one point to 78 in June, dropping below the July 2008 level at the depths of the global financial crisis.
© 2013 AFP