French debt flirting with danger zone -audit office

Wed Jun 22, 2011 4:45am EDT

* Govt's growth, revenue forecasts may prove optimistic

* Sticking to deficit targets key to keeping debt in check

* Government on track to meet 2011 deficit target

PARIS, June 22 (Reuters) - France's debt is approaching a danger zone, making it all the more important for Paris to stick to its deficit reduction targets, the national public audit office said on Wednesday.

The government, which has made keeping France's coveted AAA credit rating a top priority, nudged up its debt forecasts on Tuesday, estimating that the public debt would peak in 2012 at 86.9 percent of gross domestic product.

"The deficits remain much too high to keep the public debt from taking off, and in comparison with many other European countries," the audit office's head Didier Migaud told a commission of lawmakers at the lower house of parliament.

"We are approaching the danger zone where the debt to GDP ratio becomes increasingly closely watched," he added.

The government of President Nicolas Sarkozy aims to cut the public deficit from 7.1 percent of GDP in 2010 to 5.7 percent in 2011 as part of efforts to meet an EU limit of 3.0 percent in 2013.

"On condition of strict control of spending, the overall deficit for public bodies can be brought down to 5.7 percent of GDP in 2011, as foreseen by the government," Migaud said.

However, the office warned in an annual outlook report for the public finances that the government's growth and revenue expectations may prove too optimistic.

The government is forecasting economic growth this year of 2.0 percent followed by a 2.25 percent expansion in 2012. (Reporting by Leigh Thomas)