Paris short €43bn to meet EU deficit targets
02.07.12 @ 16:53
BRUSSELS - The French government will have to find €43bn in order to bring the country's deficit in line with EU rules by 2013, a fresh report has shown.
A report on state finances by the national Court of Auditors said Paris will need to find up to €10bn this year and €33bn next year to reduce its budget deficit to 4.5 percent of GDP and then 3 percent of GDP.
"The situation remains extremely worrying,” court president Didier Migaud told Le Monde newspaper, referring to the state of the country’s public finances.
When asked how the money for 2013 will be found Migaud said “with more rigour.”
“In health, education, vocational training for example, France spends much more than other countries. But their results in these areas are significantly better than ours.”
“It is better to make efforts now than have them imposed by others tomorrow,” Migaud added.
The large sums are set to test Socialist President Francois Hollande's skills of persuasion.
He was elected in May on an anti-austerity ticket – although he always maintained that he would stick to France’s deficit-cutting promises.
But the report also shows that the battle will be even harder than expected – and some form of austerity will be needed.
The auditors suggested next year’s economic growth will be 1 percent, well short of the 1.7 percent predicted by the previous government while public debt is set to reach 90 percent of GDP by the end of the year – a level economists say affects growth. Under EU rules, countries have to keep their debt below 60 percent.
Meanwhile measures agreed after 6 May, the cut off point for the report were not included in the assessment – such as the decision to raise the minimum wage or France’s share in bailing out Spain’s banks.
"It will require unprecedented cuts to public spending as well as increases in taxation,” said Migaud.
The cabinet is on Wednesday expected to announce some money-raising measures while the 2013 budget to be published in autumn will be crucial.
The French government’s next moves will be keenly watched by Brussels. Paris - which has not had a balanced budged since 1974 - is seen as key to the credibility of the eurozone’s new emphasis on financial and budgetary discipline.
France is the second largest economy in the eurozone after Germany and so far investors have associated it with Europe's powerhouse.
But in January, one of the three biggest ratings agencies cut France's triple A rating, while the other two warned they may follow suit.
Hollande's perceived determination to cut back on his country's deficit will be key for investors to place France in the 'German' camp rather than associate it with troubled Italy and Spain.