French minister says meeting 2012 deficit goal unlikely

Wednesday 13 February 2013 11.00
Laurent Fabius said it was important to avoid 'squeezing what remains of growth'
Laurent Fabius said it was important to avoid 'squeezing what remains of growth'

France will probably miss this year's public deficit goal, Foreign Minister Laurent Fabius said, the first time a member of the government's inner circle has admitted doubts over the policy cornerstone are valid.

France is battling to maintain its credibility with its EU partners, rating agencies and financial markets.

It faces serious misgivings over its efforts to reform a stalled economy and cut the budget gap this year to the EU ceiling of 3% of economic output.

Asked whether the state audit body was right in suggesting that France would overshoot the target, Mr Fabius replied:

"I think it's likely, and that means we must both avoid squeezing what remains of growth while being responsible and making sure the word 'savings' is part of our vocabulary."

Finance Minister Pierre Moscovici, interviewed shortly afterwards on France Info radio, said there was no change in the government's goal of 0.8% economic growth in 2013 and a nominal deficit of 3% of GDP.

However he admitted the growth target would be "difficult" and said the Socialist government would examine if it needed to reevaluate its goals in late March, following the publication of the European Commission's new economic outlook.

"Our goal is for 0.8% growth for 2013. Let's admit it's going to be difficult," Mr Moscovici said. "I am perhaps better placed than whoever else to know that, and it's the same for the deficit. Then there is our timetable (for a review) which has not changed."

Many economists see growth coming in closer to zero after an expected expansion of just 0.1% in 2012. Preliminary 2012 GDP data will be released tomorrow.

Mr Moscovici had already said a review could come around April and many expect France will seek to negotiate an extra year with its EU partners to meet the 3% ceiling, despite the risk of a sell-off of French government debt in response.

France's Court of Auditors said yesterday it believed the deficit goal would be blown off course as the economy veers close to recession, despite the government's effort to make an unprecedented €38 billion of savings this year.

It urged the EU to make clear how it will judge member states' deficit-cutting efforts, the most explicit call to date from a French authority for Brussels to clarify how it would react to France overshooting its budget targets.

The European Commission last year granted some leeway to Spain by saying it would focus on its structural fiscal gap, which takes economic cycles into consideration, rather than the nominal deficit.

New EU treaty rules also put greater emphasis on efforts to narrow underlying budget shortfalls.

Mr Fabius's remark appeared to be the latest in a series of mixed messages sent by the nine-month-old government, which has had to repeatedly rein in its industry minister for provocative comments that clash with its official line.

Budget Minister Jerome Cahuzac backed Moscovici in saying that any modification to budget targets would come in the stability programme the government will present to parliament in mid-March before submitting it to the European Commission.

"Everybody knows it is difficult to reach nominal deficit targets when the economic cycle is as bad as this," he told France Inter radio. "Nevertheless, this is where we are at. We'll see (when we submit the stability plan) whether it is necessary to revise certain parameters."