French PM under party pressure to tweak deficit plan

PARIS Tue Apr 22, 2014 3:26pm EDT

French Prime Minister Manuel Valls delivers a statement after the weekly cabinet meeting at the Elysee Palace in Paris, April 16, 2014. REUTERS/Philippe Wojazer

French Prime Minister Manuel Valls delivers a statement after the weekly cabinet meeting at the Elysee Palace in Paris, April 16, 2014.

Credit: Reuters/Philippe Wojazer

PARIS (Reuters) - French Prime Minister Manuel Valls discussed tweaking his deficit-reduction programme on Tuesday with Socialist lawmakers who want to reduce cutbacks for low-income pensioners, a day before the plan is due to 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 output by end-2015.

Valls will present a fiscal programme 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 the plan goes to a vote in parliament on April 29.

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

"Some aspects of the savings plan can be improved," said Socialist lawmaker Dominique Lefebvre.

He said he believed the prime minister would agree to modify his plans to reduce the burden on low-income pensioners.

Berger, another Socialist lawmaker, said a 12 billion euro payroll tax cut for large companies planned for next year could be delayed until 2016, freeing up 3 billion euros to avoid freezing small pensions.

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

A report in Les Echos newspaper said his plan would increase the government's official projected deficit target by 0.2 percentage points for this year and next, to 3.8 percent and 3.0 percent respectively of gross domestic product - thereby just meeting the 3 percent target in 2015.

Valls' office declined to comment on the proposals and the head of the Socialist group in parliament, Bruno Leroux, told journalists that dialogue was continuing.

"What's important, the main thing, is that nobody questions the figure of 50 billion," said a source close to President Francois Hollande. "Today, we are in a phase of dialogue."

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 and are expected to do so again in European polls next month.

KICKSTART GROWTH

Valls, who was appointed premier in a cabinet reshuffle after the local elections and is far more popular than 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.

"The growth forecasts are perfectly in line with forecasts from the IMF (International Monetary Fund) and those of the Commission," Finance Minister Michel Sapin told journalists during a factory visit in eastern France.

"We are not looking to be above the consensus but at the top of the bracket," he said.

The forecasts are well above those of a Reuters poll of economists last week, which showed growth at 0.8 percent this year and 1.2 percent next year, with France also 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 French 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 the May 25 European Parliament election when 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 and Susan Fenton)

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