-- Paul Taylor is a Reuters columnist. The opinions expressed are his own --
By Paul Taylor
LONDON, June 29 The IMF, the OECD, the European Central Bank and the Bank of France may all be sounding the same warning: France's public debt is getting out of hand and needs to be reined in as soon as the financial crisis eases.
But President Nicolas Sarkozy is in no mood to listen with his eye fixed on his bid for re-election in May 2012, and unemployment set to soar this year and next, raising fears of social unrest.
It is one thing for Germany to delay an urgently needed clean-up of its toxic banks until after a September election. But it is another for France to defer any serious fiscal correction for three years because of the electoral calendar. Sarkozy is less than half way through his term. He should not be abdicating responsibility so soon.
Paris admitted last week it would not meet a European Union target to bring its budget deficit down below 3 percent of gross domestic product by 2012, itself delayed from the original 2010.
Budget Minister Eric Woerth told parliament that barring an extremely strong rebound in growth, the deficit in 2012 will be between 5.0 and 5.5 percent of GDP, and debt will reach 88 percent of GDP in 2012 from 77 percent this year, far above the EU's 60 percent ceiling.
In a keynote address to parliament, Sarkozy used creative accountancy to divide the shortfall into "good" deficits, incurred to stimulate the economy during the financial crisis, and "bad" deficits that arise from recurring structural costs.
The president ruled out either "austerity" or tax increases although his promises of an assault on waste, better control of health costs and a possible raising of the retirement age may indicate he intends to curb spending by stealth. Furthermore, he announced a new issuance of "good" debt, via a national savings bond to invest in technologies to boost future growth.
Sarkozy's sophistry is unlikely to satisfy the IMF, which has urged the French to start making serious inroads into its "unsustainable debt dynamics" in the 2010 fiscal year. Yet such cautions slip like water off a duck's back in the Elysee Palace.
Shortly after he won power in 2007, Sarkozy travelled personally to Brussels to fend off pressure from EU finance ministers to balance the budget by 2010. He argued that France was making painful structural reforms to its labour market and pensions that would cut public debt in the long term, but promised he would balance the books by 2012 instead.
Then came the financial crisis, sweeping away all pretence at deficit reduction. Fiscal stimulus was the order of the day. Now Sarkozy argues that tax rises or austerity next year would choke off the recovery. Then comes 2011, a pre-election year when unemployment is likely to be stuck on a high plateau.
So will there ever be a right time for France to cut its debt mountain, and can anyone or anything make it do so?
The European Union's revised budget rules are being enforced so flexibly that in practice major economies are being given as much time as they need to start bringing their deficits down. Despite pressure from Germany and the ECB for a return to fiscal orthodoxy, it's hard to see Brussels putting the thumbscrews on Sarkozy ahead of his re-election bid.
That leaves the debt market as a potential force for change. But French debt is traded as the safest in the euro zone after benchmark German bonds, and the "bond market vigilantes" are likely to have bigger worries, both on the fringes of the euro zone and outside it, than France. So Sarkozy may be able to delay fiscal consolidation until after the 2012 election. But the bill for the clean-up will be steeper for the delay. (Editing by David Evans)