France falls short on deficit, EU warns, must do more

GMT 15:45 2014 Monday ,02 June

Arab Today, arab today France falls short on deficit, EU warns, must do more

Banque de France
Brussels - AFP

The EU warned France on Monday that its efforts to cuts its budget deficit were only partly on track and it would have to do much more to free up the struggling economy.
The advice was part of the EU's raft of recommendations on how the 28 member countries manage their economies and came only a week after anti-EU populists rode a wave of anger against austerity in a shock election breakthrough.
During the debt crisis, similar recommendation sessions had been more tense affairs, with the Commission voicing a tough line against problematic countries -- especially bailout recipients such as Greece, Portugal and Ireland.
But after the victory of anti-EU parties in France, Britain and Greece in European elections last week, the Commission opted for a more technical tone, with recommendations broadly unchanged from earlier versions.
"Positive results are becoming evident," European Commission head Jose Manuel Barroso said on releasing the lengthy policy recommendations.
The issue now, he said, is "how do we keep up the momentum for reform in the EU without the pressure of the crisis bearing down on us?"
All eyes were on beleaguered France, the EU's second-biggest economy, which is struggling to reduce its public deficit while teetering on the edge of recession as other crisis-hit countries are recovering.
Paris has promised 50 billion euros ($70 billion) of spending cuts and reforms to get back in the EU's good graces, but the Commission said that while the country was on the right track these were not enough.
"Overall, the budgetary strategy outlined in the programme is only partly in line with the requirements of the Stability and Growth Pact," the Commission said.
Under these EU rules, budget deficits -- the shortfall between government income and spending -- should not be more than 3.0 percent of annual gross domestic product (GDP).
Accumulated debt -- the sum of all those annual deficits -- is supposed to be kept at 60 percent of GDP, or falling to that ratio.
In 2013, France's finances were far off that mark with a budget deficit of 4.3 percent and total debt at 93.5 percent, compared with neighbouring Germany's zero and 78.4 percent.
The EU also warned the growth outlook announced for next year by the French government of 1.7 percent was "too optimistic". Instead, the Commission is predicting 1.5 percent.
The EU's recommendations for Italy were also particularly closely-watched after the centre-left Prime Mister Matteo Renzi won his European poll test on the back of promises of far-reaching reform of the Italian economy, provided he was given enough time.
The EU said it was removing six countries from excessive deficit procedure, an official warning zone for countries that exceed the bloc's targets.
These were eurozone members Belgium, Austria, the Netherlands and Slovakia as well as EU-only members Denmark and the Czech Republic.
- Political price of austerity -
Before the recommendations were released, EU officials said that the Commission would take care not to single out France.
President Francois Hollande was hit by a stinging rebuke from the country's electorate when the far-right National Front took one in four votes against his party's 14 percent in European Parliament polls -- the first time the anti-EU party has topped a nationwide poll.
The anti-EU vote "has created the view that we have to pay attention to France, that we must not add to its problems and not give the impression that France no longer counts," said one EU official.  
Isolating France is notably a worry in Germany where Chancellor Angela Merkel, a strong backer of EU budgetary rigour, has been careful to laud the efforts made by embattled Hollande.
Hollande, in the wake of last week's vote, said European leaders had to "heed what had happened in France" or face "other votes in France and elsewhere against Europe".
For now, the financial markets have remained largely calm, with only a subdued reaction so far to France's difficulties.
But with a steady trickle of bad data, sentiment could very well turn.
On Monday, data showed only sluggish manufacturing activity for the eurozone last month, with a particularly poor performance in France.
France was the weakest of the eurozone economies covered by the surveys -- its PMI, or Purchasing Managers' Index, indicated that activity fell.


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