France to breach EU deficit rules

[Said1]

France to breach EU deficit rules in 2006, despite budget promises

PARIS (AFX) - France's budget deficit, already on track to exceed 3 pct of output this year, will widen even further in 2006, despite a series of 2006 budget promises aimed at reining in spending, economists said.

If, as widely expected, the public deficit overshoots the government's target of 3 pct of GDP this year, it will mark the fourth straight year that France has failed to respect the terms of the euro zone's Stability and Growth Pact.

Overall debt, for its part, will remain well above the pact's threshold of 60 pct of GDP both this year and next, a breach that was openly acknowledged by the government in its 2006 budget presentation yesterday.

In effect, the budget has been built on spending and growth forecasts, including economic growth of 2.25 pct next year, that few economists consider attainable.

'The growth forecast is a risky bet,' said Emmanuel Ferry, chief economist at Exane BNP Paribas. He added that the government's goal of keeping the debt-to-GDP ratio limited at 66 pct is 'totally unrealistic' -- he sees this ratio reaching 70 pct next year.

'The forecast is all the more optimistic, given the governments fairly unfavourable oil price estimate of 60 usd per barrel,' said Olivier Gasnier, economist at Societe Generale, adding that 'we see no signs of a spontaneous

improvement in the labour market.'

This will put France on track for another confrontation with the EU

Commission, which in theory could impose fines until the country's finances are brought back into line with stability pact commitments.

But economists said that concerns about sustaining European growth will keep the commission from proposing sanctions, and France will likely get away with just a slap on the wrist, as it did in 2003, when deficits in both France and Germany broached the 3 pct limit for the first time since the launch of the euro.

'We rather expect the deficit to reach 3.2 pct (of GDP) this year and rise to 3.3 pct in 2006. Enough to raise eyebrows in Brussels, but not enough to warrant an excessive deficit procedure,' said Eric Chaney, economist at Morgan Stanley.

Even if oil prices ease from current highs, dealers said the negative impact from this year's surge in energy costs will be a handicap for the economy for several quarters to come, and thus discourage the EU Commission from taking action.

The International Monetary Fund anticipates French growth of 1.8 pct next year, while some economists paint an even darker picture; Laure Maillard at Ixis see growth as low as 1.2 pct, while Ferry at Exane expects just 1 pct growth.

'All in all, we do not share the over-optimism regarding growth expectations for next year,' said JP Morgan economist Maryse Pogodzinski, who said the government 'risks some significant fiscal slippage, leaving

its public deficit above 3 pct of GDP once again in 2006.'

But Pogodzinski believes it is 'fair enough to recognise the increased efforts from the French government to keep a tight control on overall spending despite an unfavorable social climate.'

For the third year in a row, France has pledged to keep central government spending stable in real terms, and it has announced a new series of measures aimed at bringing down Social Security spending, one of the main sources of the country's projected deficit in 2006.

This should keep France's euro zone neighbors from voting to pursue sanctions against France. Already in March, EU leaders agreed to soften the criteria under which member states can breach the pact's deficit limit, mainly in response to France and Germany's inability to bring deficits under control.

But France will remain in the sights of its EU partners; in June, EU commissioner for economic and monetary affairs Joaquin Almunia said the commission is keeping 'all options open' regarding the budgetary situations of France and Germany.

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[Hagbard Celine]

Well this isn't good at all. The EU is going to have to punish France for being such a bad bad girl.

 

[ekrem]

The Problem is Germany broke the fedicit the last 2 years, too.

EU says no deficit more than 3 % of GDP.

Greece for example tricked their memebership in € (Euro-currency)-membership.
And is now going to fear massive punishment.

In the year Greece joined €-Currency they gave their Budget with about 2.8 % deficit.
Now it is clear that Greece had in thisyear about 6 % deficit. Since Then greece always missed 3%.


So, nothing special with france. France + Germany are not that doing good in economy, but UK is booming.

 

[padisha emperor]

Well, just a thing : France as bigger deficit than 3%, and one of the reason is the the State, in France, spends a lot of money. Where ? to Whom ?to public services, to hospitals, to the Healthcare system ("Sécurité Sociale"), education system..............et caetera.

All this money represents an awesome quantity of money. But it is used, and brings to France an excellent public services system : excellent hospitals : OMS, the World Health Organisation, puts France #1.
Excellent schools, and formation from 6 to 18. And also good universities, and excellent high schools (to 25-26, sometimes more).
And it was just two examples, there is also the trains, the fact that everybody, even without money, can be healthed.

Lots of British come to France to live in. Why ? they said that life is far far better in France, for the quality, for the services. And in comparaison to UK, the french services in France (public services) are Paradize.

So, Uk's economy is booming, but more and more UK's citizens leave to live in France.....