Thursday 23 May 2019

France defies the rest of Europe by unveiling 'no austerity' budget

French finance minister Michel Sapin addresses reporters during the presentation of the 2015 budget at the finance ministry in Paris (AP)
French finance minister Michel Sapin addresses reporters during the presentation of the 2015 budget at the finance ministry in Paris (AP)

Leigh Thomas

France laid down the gauntlet to European Union partners yesterday with a 2015 budget setting out how it would bring its borrowing back to within EU limits two years later than promised, a retreat it blamed on a fragile economy.

The announcement from Paris came hours after news that Italy too planned to ease the pace of painful deficit-reduction steps to try to counter another year of recession.

"We have taken the decision to adapt the pace of deficit reduction to the economic situation of the country," French Finance Minister Michel Sapin told a news conference. "Our economic policy is not changing, but the deficit will be reduced more slowly than planned due to economic circumstances - very weak growth and very weak inflation."

Under the French budget plan, the public deficit is set to fall from 4.4pc of output this year to 4.3pc next year, 3.8pc in 2016 and 2.8pc in 2017 - below the EU-mandated threshold of 3pc.

Previously, France had promised EU partners it would bring its deficit below 3pc by next year, a deadline that had already been extended from 2013. France's spending watchdog doubted even the new targets could be reached.

"No further effort will be demanded of the French, because the government - while taking the fiscal responsibility needed to put the country on the right track - rejects austerity," the budget statement said.

President Francois Hollande is resisting pressure from some in his Socialist Party to ease off even more emphatically on cutbacks but also has to contend with an approval rating at a record low 13pc and news a week ago that conservative rival Nicolas Sarkozy, the man he beat in the 2012 election, is making a return to frontline politics.

Mr Sapin, who this month conceded the 2015 deficit target was untenable, reaffirmed forecasts that the Eurozone's second largest economy would grow at a modest 1pc next year, rising to 1.9pc in 2017.

Despite the government's decision to lower its sights, the country's independent public finances watchdog, the High Council of Public Finances, said the revised projections still looked optimistic as far as 2016 and 2017 were concerned.

The government described its effort to shave €50bn off projected public spending volumes between now and 2017 as "unprecedented" - while acknowledging the total volume of public spending would still rise by 0.2pc over the period.

That would imply public debt ticking up to a peak of 98pc of output in 2016 before a slight fall in 2017. French public spending and the total tax burden - among the highest in the world - would fall only modestly as a result. The so-called structural deficit, a figure closely watched by EU budget watchdogs as it strips out the effects of the economic cycle, will fall less than hoped by France's partners from 2.2pc of output in 2015 to 1.4pc in 2017.

Incoming European Commission President Jean-Claude Juncker is now under pressure to react firmly enough to avoid a further loss of confidence in the bloc's already battered budget rulebook. His options include sanctions such as fines.

The Commission, where Mr Sapin's predecessor Pierre Moscovici has just been named Commissioner tasked with keeping tabs on respect for EU budget rules, declined to comment.

Indo Business

Also in Business