France took a bet today that its tentative economic recovery will eventually gain momentum, as the French government revealed a budget based on running record deficits until at least 2011.
According to figures released with the budget plan, France's public deficit will grow to a record 8.2% of GDP this year and 8.5% in 2010, with growth expected to rise to only an anaemic 0.75% next year.
Despite massive budget shortfalls, stimulus spending will continue as France battles to shake off the effects of the global crisis and businesses will be given more than €13 billion in tax cuts.
Deficit and debt levels will therefore not fall before 2011, and there is no prospect of returning them to the levels mandated by the euro zone stability pact until beyond 2012, the government said.
Under Maastricht Treaty rules, euro zone member states are supposed to keep their deficits under 3%, but most are far above this as their public spending explodes and tax revenue falls during the crisis.
French public debt will soar to 84% of national output in 2010, up from 68% at the end of 2008 and well above the theoretical 60% limit set when Paris and its partners launched the single currency.
High deficits have been an intractable problem for years and were greatly aggravated by the recession.
According to the budget, the French economy is expected to shrink this year by 2.25% before seeing renewed growth of 0.75% next year and 2.5% in 2011.
Presenting her plans to a parliamentary finance committee, Finance Minister Christine Lagarde described the proposal as a ‘recovery budget.’
‘It's imperative that we support growth, because it's the return of growth that will generate investment and jobs,’ she said.
France expects to lose 580,000 private and 34,000 public sector jobs this year, and the budget forecasts that another 190,000 could go next year.
The European Commission has forecast that unemployment in France will rise to 9.6% in 2009 and 10.7% in 2010.
Among the fiscal measures announced in the French budget were a 'green' carbon tax on households and businesses, and cuts in local business taxes.
