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France set to miss key deficit target - European Commission
May 5, 2014 / 9:10 AM / 3 years ago

France set to miss key deficit target - European Commission

* Commission sees French budget deficit at 3.4 pct in 2015

* Spain set to miss its deficit goal too

* Greece, Portugal deficits seen falling

By Jan Strupczewski

BRUSSELS, May 5 (Reuters) - France will miss its 2015 budget deficit target unless it makes rapid policy adjustments, the European Commission warned on Monday as it unveiled its latest economic forecasts for the 28 countries in the European Union.

France was supposed to have cut its deficit to 3.0 percent of gross domestic product by 2013, but the EU extended the deadline by two years due to extremely weak growth in the euro zone’s largest economy after Germany.

Paris then delivered a 4.3 percent deficit in 2013 instead of 4.1 percent and is set to miss this year’s target too. At the same time, other euro zone countries in far more difficult economic circumstances have managed to meet their obligations.

French Prime Minister Manuel Valls reaffirmed last Wednesday that France intended to stick to the 3 percent target for 2015 after the French parliament backed a 50-billion-euro package of savings that will be implemented through to 2017.

But the Commission, the EU’s executive, forecast that unless France goes even further it will end up with a deficit of 3.4 percent of GDP next year. If Paris fails to meet the 3 percent target without a good excuse, it could face fines.

France’s refusal to accept disciplinary action for missing its budget deficit target in 2003 lead to a softening of budget rules, which was one of the causes of the sovereign debt crisis that afflicted the euro zone from 2009-2013.

Part of the difference in 2015 deficit forecasts between the Commission and France is likely to stem from a more optimistic view of economic growth in Paris, where the government sees GDP expanding by 1.7 percent. The Commission expects 1.5 percent.

EU policymakers believe France must meet the target to uphold the credibility of EU budget rules - known as the Stability and Growth Pact - that were sharpened in 2012 to prevent another debt crisis.

After years of tough austerity and reforms, Greece will have reduced its budget deficit to 1.0 percent in 2015 from 1.6 percent this year. It was 12.7 percent in 2013.

Another country that must do more to rein in its budget shortfall is Spain, the Commission said, projecting that unless Madrid changes policy, the gap will grow to 6.1 percent in 2015, from 5.6 percent expected this year.

Last week, Spanish Economy Minister Luis de Guindos said his country was on track to meet its 2015 deficit goal of 4.2 percent of GDP, even though the government’s growth forecasts are only for 1.8 percent growth next year. The Commission is forecasting 2.1 percent.

Portugal, which will exit its euro zone bailout programme later this month, will reduce it budget gap to 4.0 percent this year and 2.5 percent in 2015, the Commission forecast, with economic growth of 1.2 and 1.5 percent respectively. (Reporting By Jan Strupczewski; editing by Luke Bker)

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