May 11, 2012 / 2:04 PM / 8 years ago

Growth champion Hollande faces French deficit test

TULLE, France (Reuters) - President-elect Francois Hollande said on Friday that France’s public finances were worse than indicated by the outgoing conservative government after the European Commission forecast Paris would miss its deficit target next year.

France's newly-elected President Francois Hollande attends a ceremony at the General Council of Correze in Tulle, May 11, 2012. REUTERS/Regis Duvignau

Hollande is leading a drive to shift Europe’s focus away from budget discipline toward growth but may now be forced to make fresh cuts to public spending or raise taxes more than planned at home if France is to stick to EU-imposed deficit limits.

Despite his high profile challenge to euro zone austerity the incoming president, who beat Nicolas Sarkozy in a run-off vote on Sunday, pledged throughout the election campaign to respect a commitment to cut the deficit to 3.0 percent of GDP in 2013, providing growth remained solid.

However, the European Commission forecast on Friday that the public deficit would fall to only 4.2 percent in 2013 from an estimated 4.4 percent this year, estimating that growth would be 1.3 percent instead of about 1.75 percent expected by the government and Hollande.

Private economists are even more pessimistic about France’s deficit with a Reuters survey of their forecasts showing an average estimate of 4.6 percent in 2013. In 2011, the deficit fell to an estimated 5.2 percent.

Hollande, who has ordered an audit of the state accounts for the end of June from the “Cour des Comptes” public auditor, said the commission’s forecasts vindicated his suspicions that Sarkozy’s government has not painted an accurate picture of finances.

“I’ve known for several weeks that there’s been a worse deterioration of our public accounts than what the outgoing government has said,” he told journalists in his rural base of Tulle, central France.

“Now we have the confirmation and it’s worth looking at and analyzing. I will wait for the report from the Cour des Comptes before taking the necessary decisions,” he added.

If the audit turns up nasty surprises, Hollande may have little choice but to sacrifice some of his campaign promises and freeze some spending or risk exposing France to a financial market backlash.

But even if the audit confirms existing estimates, Hollande may nonetheless have to take action on spending or taxes to meet the 3.0 percent target, especially if growth proves to be closer to the commission’s forecast.

“We are waiting for the French authorities to decide which measures will be introduced for 2013,” EU Economic and Monetary Affairs Commissioner Olli Rehn said in Brussels.

Among new spending plans, Hollande wants to hire 60,000 school staff and create 150,000 state-aided jobs in a country that already has one of the highest levels of public expenditure in the world.

Despite some new spending in his program, Hollande aims to cut the deficit each year until the public accounts are balanced in 2017, mainly by reining in growth in overall expenditure and increasing taxes primarily on the wealthy.

Outgoing budget minister Valerie Pecresse dismissed the possibility bad news hiding in the public accounts and said the commission’s estimates should be a wake-up call on spending.

“The commission’s forecasts are a serious warning against foolhardy spending promises that the new president made during the campaign,” she said in a statement.

Reporting by Regis Duvignau and Leigh Thomas,; additional reporting by Jan Strupczewski in Brussels; writing by Leigh Thomas; editing by Geert De Clercq

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