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EU on edge again with France latest debt fear

Europe releases its latest economic forecasts Friday — with a weak growth outlook likely to push France into overshooting EU budgetary targets and possibly triggering an intensification of the eurozone debt crisis.

After months in which the twin threat of government debt and recession appeared to be receding, recent data suggests that the France economy will fail to rebound this year.

France’s financial woes pose a pointed political problem as the EU strives to maintain momentum for tough economic reforms and balance painful austerity with anger over high and mounting unemployment.

The French economy has a gloomy outlook, going by a closely-watched survey of private business activity released Thursday, with purchasing managers suggesting a downward spiral sharper than at any time since March 2009.

The French government said this week that it will soon revise down its 2013 growth forecast, which will hinder its efforts to meet its EU obligations to cut its deficit.

More broadly, the latest feedback implies that the eurozone “is on course to contract for a fourth consecutive quarter in the first three months of the year,” said the London-based Markit survey’s boss Chris Williamson.

The French economy could be heading in the first quarter of 2013 for its worst performance in four years — putting pressure on Brussels to act, or explain leniency under EU rules tightened since the crisis first erupted in Greece.

The European Commission forecasts, due out at 1000 GMT on Friday, will show how far off the pace France and other countries are when it comes to an obligation to get public deficits back within the nominal EU limit of three percent of gross domestic product (GDP) this year.

States that fall short expose themselves to financial sanctions under toughened laws concerning economic governance across the single EU market of half a billion consumers and 17-state euro currency area.

Within the eurozone, only Belgium, Italy, Austria and the Netherlands appear to be on the right track, said Amsterdam-based Carsten Brzeski of ING Bank in a note to investors.

Since Francois Hollande took the French presidency last year, Paris had consistently maintained it would meet Brussels public spending targets despite flagging economic confidence.

However, last week France admitted it will not meet the three-percent threshold as GDP growth this year will be less than the previously-stated objective of 0.8 percent.

French media said late on Thursday that the Commission now anticipates the deficit will come in at to 3.6 percent of GDP in 2013 on the back of flat growth — which leaves Paris looking to emulate Spain and others in receiving from Brussels more time to regain control of public finances.

EU Economy and Euro Commissioner Olli Rehn has repeatedly taken the view that if wider economic constraints mean forecasts slide, countries can win breathing space as long as they can be seen to have made a sufficient effort to cut budgets.

Hollande already refused on Wednesday to deepen spending cuts he reckons could push France into a vicious circle of falling output, rising deficits and more cutbacks.

While leniency on austerity would boost growth prospects, the EU also runs the risk of loosing credibility among investors if countries aren’t seen as making progress on bringing their finances into balance.

— Street protests —

France is not alone in seeking leniency from Brussels.

Portugal says it needs an extra year to get its finances back in order despite eurozone and International Monetary Fund loans, Finance Minister Vitor Gaspar saying a 12-month extension would be “reasonable” as it faces a 2.0 percent recession this year.

Spain — where the banks were the beneficiary of an ad hoc bailout after a construction and property bubble burst — now says its 2012 deficit will be above its 6.3-percent agreed target, although analysts actually feared worse.

Leaders across the EU are concerned about total unemployment of 26 million people, with the bloc’s budget already tweaked to re-direct billions towards reducing chronic youth unemployment in Spain and Greece especially.

The Group of 20 major world economies also now wants a softer approach to austerity cutbacks.

Street demonstrations and strikes remain a recurrent EU backdrop. About 50,000 people protested in Greece on Wednesday, and on Thursday, the EU capital of Brussels was also thronged by 30-40,000 demonstrators angered by a salary freeze there.