'Over optimistic' France needs two more years to correct deficit
By Benjamin Fox
France has moved centre stage in the crisis, after EU economic affairs commissioner Olli Rehn said that the country would fall into recession in 2013 and needs two more years to bring down its budget deficit.
Presenting the Commission's Spring Economic Forecasts on Friday (3 May), Commissioner Rehn described Paris's forecasts, based on a mere 0.1 percent growth rate, as "overly optimistic."
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The eurozone's second largest economy would run deficits of 3.9 percent in 2013 and 4.2 percent in 2014, he said, calling on Francois Hollande's government to draw up a "front loaded" package of cuts and labour market reforms to stop "persistent deterioration of French competitiveness."
For its part, Paris maintains that it will reduce its deficit to 2.9 percent in 2014, fractionally below the 3 percent limit in the EU's Stability and Growth Pact.
Hollande in March announced that an additional €20 billion worth of tax rises and €10 billion in spending cuts would be included in his budget plans but said no further cuts would be made.
According to the commission figures, the eurozone economy will contract by 0.4 percent in 2013, with growth of 1.2 percent projected for 2014. Crisis-hit Cyprus, which has now finalised a 10 billion bailout, is set to be worst hit by recession with an 8.7 percent fall in output.
Meanwhile, the average national debt pile is expected to peak at 96 percent of GDP in 2014, with six countries - Belgium, Ireland, Greece, Italy, Cyprus and Portugal - having debts larger than their annual economic output.
Rehn indicated that Spain would also be given an additional two years to bring its deficit down to the 3 percent threshold, while Slovenia would also need more time.
However, there was better news for Latvia, Lithuania and Romania, who are set to leave the so-called Excessive Deficit Procedure (EDP) for countries in breach of the debt and deficit limits.
Hungary as well as Italy - previously regarded as a weak link in the eurozone - will also move off the EU's economically endangered list in 2013 if they continued reform programmes, Rehn added.
Rehn also said that the UK, which ran the second largest deficit across the EU behind Ireland in 2012, had no room for manoeuvre. "There is no case for discretionary fiscal loosening in the UK," he said.
The grim statistics come a day after the European Central Bank cut headline interest rates to an historic low of 0.5 percent, with the Frankfurt-based bank adding that it was "ready to act if needed" to shore up the single currency.