September 27, 2017 / 11:23 AM / 3 years ago

French government sees EU credibility in reach with 2018 budget

PARIS (Reuters) - The French government will cut taxes and spending under the terms of the first budget offered by President Emmanuel Macron, in a bid to restore France’s fiscal credibility in Europe.

Finance Minister Bruno Le Maire said France had to seize the opportunity presented by the healthy economic growth expected this year and next year to bring its public deficit in line with European Union’s rules for the first time since 2007.

The Finance Ministry forecast the deficit would fall below the EU’s limit - 3 percent of gross domestic product - this year at 2.9 percent and in 2018 at 2.6 percent.

Two years below the 3 percent threshold, Le Maire said, puts France on course to exit an EU excessive-deficit procedure it has faced since 2009 for failing to meet the EU deficit limit.

Macron needs to show France is fiscally responsible if he is to persuade Berlin and other European capitals to rally behind his drive to overhaul the euro zone - a quest complicated by Germany’s election result on Sunday.

“In order to recover our credibility in Europe, we have to respect our European commitments,” Le Maire told journalists as he presented the budget.

“We are the last country in Europe, with Spain, subject to an excessive deficit procedure,” he added, speaking a day after Macron outlined an ambitious vision for European renewal.

Though the headline deficit respects the EU rules, the sailing is unlikely to be all smooth with France’s EU partners.

Paris will have to reassure them that a spike in the deficit to 3.0 percent in 2019 is temporary, as an existing payroll tax credit scheme is converted to a permanent cut in corporate charges that year.

France’s independent fiscal watchdog has also warned that progress bringing down the underlying structural deficit, which excludes the impact of swings in the business cycle, will fall short of EU requirements.

“We are going to convince the European Commission - I hope - that our structural effort is reasonable in light of spending cuts and economic reforms,” Le Maire said.

French Finance Minister Bruno Le Maire (C) and Minister for Public Action and Accounts Gerald Darmanin (R) arrive to present the French gouvernment's budget at the National Assembly in Paris, France, September 27, 2017. REUTERS/Stephane Mahe


EU Economics Commissioner Pierre Moscovici, who failed as French finance minister from 2012 to 2014 to meet the deficit rule, welcomed the government’s plans as “good news”.

But ING economist Julien Manceaux said the European Commission might focus on the lack of progress on the structural deficit rather on the improving headline deficit.

“It’s not clear that it will be enough to get France out of the excessive deficit procedure, but it’s better than before,” Manceaux said.

Budget Minister Gerald Darmanin said that budget savings would reach 16 billion euros ($18.8 billion), scaled down from 20 billion euros as originally planned by the government.

But the conservative head of the lower house of parliament’s finance commission, Eric Woerth, said the budget fell short of what the economy could handle given its current strong growth.

“It doesn’t go far enough, for example on the number of civil servants,” Woerth said. “It leaves things half finished.

Le Maire said that the budget was not all about rigor with six billion euros in tax cuts for households and four billion euros for companies.

Slideshow (5 Images)

“The French need to know that we are determined to reduce their taxes,” Le Maire said.

Stronger-than-expected economic growth this year is offering the government some breathing space, generating better tax revenues than originally budgeted.

Reporting by Leigh Thomas; editing by Larry King

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