French finance minister adrift on sea of broken promises

PARIS Thu Aug 14, 2014 11:42am EDT

PARIS Aug 14 (Reuters) - Photos of France's portly finance minister rowing a tiny boat on holiday circulated social media on Thursday - emblematic of a French economic ship for which, under the current government, prosperity is always beyond the horizon.

"Look, he's not sinking. Everything must be fine," read one sarcastic Twitter comment after Michel Sapin became the latest minister to push the prospect of sound state finances and a healthy economy ever further into the future.

France on Thursday slashed its growth forecasts for both 2014 and 2015 and said it would miss its public deficit target this year after data showed the economy stuck at zero growth for the second straight quarter.

During his 2012 election campaign, President Francois Hollande proclaimed: "I will bring public finances back into balance, respecting our undertaking to have a deficit of not more than 3 percent of GDP in 2013."

Taking power in May that year, Hollande built his economic promise on an assumption that growth would be 1.7 percent in 2013, 2 percent this year, then an average of 2 to 2.5 percent a year until 2017 - at which point the state budget would be in balance.

By the autumn of 2012, the five-year balanced budget promise had already gone. The 2013 growth forecast was also halved to 0.8 percent.

The following April, the 2013 deficit target was pushed out to 3.7 percent from 3.0 as growth slowed, ushering in a 2.9 percent projection for the end of 2014, and putting France in breach of its deficit-cutting promise to its European Union partners.

EU officials gave Hollande another two years to get under the magic 3 percent, but by the beginning of the summer, even that extra leeway was looking insufficient.

As cost-saving reforms stalled amid squabbling among business leaders, unions, politicians and other interest groups over who should take the pain, state auditors said the 2013 deficit was more likely to be 4.0 percent than 3.7.

Fast forward to August 2013 - a year ago - and the then finance minister, Pierre Moscovici, began promising bigger tax cuts to companies than previously envisaged under the reforms, putting further pressure on future budgets.

With growth still weakening and tax receipts lower than hoped for, out came the red pens once more in September. The 2014 deficit would be 3.6 percent of GDP, no longer 2.9.

2014 began with repeated promises that 2015 would be the year France would limbo triumphantly under the 3 percent deficit bar, but the message became more nuanced as the year wore on.

At the end of March the deficit figure for 2013 came in at a hefty 4.3 percent - higher, again, than expected.

Month after month, economic data pointed to a flatlining economy, but Hollande made it clear he would not be extending his cost saving reforms to compensate.

Hollande's aides, shocked by European and local election defeats and defending the most unpopular president in French history as unemployment reached record levels, argued the need for EU talks on how to put growth efforts at the forefront.

On Wednesday, Jean-Christophe Cambadelis, head of the ruling Socialist Party, was already preparing the ground for more goalpost-shifting ahead of Thursday's catastrophic GDP figures. Missing the 3 percent target in 2015 was "unavoidable", he said.

Sapin hinted his assent in his pronouncements on Thursday, saying France would cut its deficit "at an appropriate pace".

And as second quarter growth came in at zero, he jettisoned pretty much everything the target depends on, putting this year's deficit at more than 4 percent, missing the existing 3.8 percent target, halving this year's growth forecast to 0.5 percent, and cutting next year's to about 1 percent from 1.7.

"When the growth motor is broken, all you can do is row," said another Twitter critic of Sapin's holiday snaps.

(Editing by Mark Heinrich)

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