French PM under party pressure to tweak deficit plan

PARIS Tue Apr 22, 2014 5:29am EDT

French Prime Minister Manuel Valls sits in the hemicycle before his general policy speech at the National Assembly in Paris April 8, 2014. REUTERS/Charles Platiau

French Prime Minister Manuel Valls sits in the hemicycle before his general policy speech at the National Assembly in Paris April 8, 2014.

Credit: Reuters/Charles Platiau

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PARIS (Reuters) - French Prime Minister Manuel Valls will discuss tweaking a major deficit-reduction program on Tuesday with Socialist lawmakers who want to reduce cutbacks for low-income pensioners, a day before it is due be presented to parliament.

The newly appointed prime minister unveiled the breakdown last week of a 50-billion-euro ($69 billion) plan to curb state spending in several areas as France struggles to bring its deficit below an EU target of 3 percent of GDP by end-2015.

Valls will present a fiscal program covering 2014-2017 to parliament on Wednesday before sending it to the European Commission, which is in charge of policing member states' public finances.

However he must first head off a revolt by lawmakers in his own Socialist party who oppose plans to freeze all state pensions and welfare benefits for a year if he is to secure majority backing when it goes to parliament on April 29.

Valls was due to meet with lawmakers who on Monday proposed a reweighted 50 billion euro savings program that would delay planned tax breaks for large companies by one year in order to avoid freezing the lowest state pensions.

"The 50 billion euros in savings proposed by the president are necessary and realistic," Socialist lawmaker Karine Berger told Le Parisien newspaper. "But there are other ways of getting there than cutting into the purchasing power of low-income French people."

Under her plan, Berger said a 12-billion-euro payroll tax cut for large companies planned for next year would not be take effect until 2016, freeing up 3 billion euros to avoid freezing small pensions.

BFMTV, quoting a source in the prime minister's office, said Valls was ready to adjust the program if the headline savings figure was unchanged. However he would not agree to proposal by a group of more radical left-wing MPs to reduce the cuts to 35 billion euros, BFMTV said.

With unemployment near 11 percent and growth sluggish, Valls must strike a balance between reassuring EU partners and investors about France's deficits and appealing to voters who punished the Socialists in local elections last month.

KICKSTART GROWTH

Valls, who took office in a cabinet reshuffle after that vote and is far more popular than President Francois Hollande, emphasized kickstarting growth via hefty payroll tax cuts over deficit-cutting when he took office last month.

But French ministers and officials were told very firmly by Brussels and Berlin that Paris has already had a two-year delay in meeting the EU deficit target and must stick to its word for the sake of the credibility of the euro zone.

The government is to raise its growth forecasts to 1.0 percent in 2014, 1.7 percent in 2015 and 2.25 in 2016, versus 0.9 percent this year, 1.7 percent and 2.0 percent previously, business daily Les Echos quoted sources as saying on Monday.

Those forecasts are well above the median view in a Reuters poll of economists last week that showed growth at 0.8 percent this year and 1.2 percent next year, with France missing its deficit-reduction target next year.

Successive French governments have a track record of basing budget plans on over-optimistic growth and revenue forecasts that lead to a higher deficit when growth falls short.

A new EU budget review procedure, known as the European Semester, gives the Commission more power to challenge figures its own economists deem unrealistic and send a national budget plan back for redrafting.

Diplomats said that provided the plan aims for a deficit below 3 percent next year, a lame-duck Commission in its last months in office would probably not want to challenge Paris ahead of a May 25 European Parliament election in which anti-European far-right populists are forecast to make big gains.

($1 = 0.7244 Euros)

(Reporting By Nicholas Vinocur and Marine Pennetier; Editing by Paul Taylor)

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