September 30, 2014 / 9:27 AM / 5 years ago

Record French debt burden adds to strain on public finances

PARIS (Reuters) - France’s national debt rose to a record 95.1 percent of annualized economic output in the second quarter, data showed on Tuesday, underlining the country’s struggle to rein in its public finances a day before the 2015 budget is presented.

French Prime Minister Manuel Valls and French Economy and Industry minister Emmanuel Macron (R) visit Airbus headquarters in Hamburg September 22, 2014 . REUTERS/REUTERS/Axel Heimken/Pool

In the second quarter, the national debt topped two trillion euros for the first time as it rose to 95.1 percent of GDP from 94.0 percent in the first quarter, according to the official statistics agency INSEE’s figures.

The news follows the latest evidence of the sacrifices necessary to get France’s finances in order. Late on Monday the government announced plans to cut health spending and pare family benefits.

The Socialist government will cut social security spending by 9.5 billion euros ($12.05 billion) next year, officials said, in an attempt to rein in a welfare system deficit that is set to come in at a bigger-than-expected 11.7 billion euros in 2014.

That means the welfare and health systems make up nearly half the 21 billion euros in overall budget savings the government aims to make in its 2015 budget.

The government is looking to wring 3.2 billion euros from health spending alone, a tough pill to swallow in country that prizes its generous public health system.

A further 700 million euros in savings will be squeezed out of the budget for family benefits, which economists say has encouraged higher birth rate than many other European countries.

Eager to avoid outright budget austerity, the government is loathe to make unpopular cutbacks and has so far largely focused its belt-tightening instead on limiting public spending growth to the rate of inflation.

But cutting has increasingly become unavoidable as it tries to get the public accounts in order and in the face of weaker-than-expected tax receipts and near-zero inflation.

The government is likely to revise up the nation’s debt burden in the 2015 budget after it acknowledged earlier this month that its public deficit would be bigger than expected.

It had previously hoped to cap the public debt at 95.6 percent of GDP this year and keep it at that level next year, but the figure could keep rising to hit 100 percent as soon as 2015 following the deficit revision, according to Reuters calculations.

The government said earlier this month that it would not cut its public deficit as fast as it has promised its EU partners, blaming weak growth and low inflation.

It now does not expect the deficit to fall in line with an EU-agreed limit of 3 percent of economic output until 2017, instead of 2015 as previously planned.

(1 US dollar = 0.7883 euro)

Reporting by Leigh Thomas; Editing by Andrew Callus and Tom Heneghan

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