France faces budget pressure

France will come under further pressure to bring its finances under control at a meeting of EU finance ministers next month (12 February).

Finance ministers will scrutinise the European Commission’s assessment of France’s mid-term budgetary plans, released yesterday (30 January), in which France was ordered to speed up efforts to reduce its public deficit.

The Commission said yesterday that France should "considerably strengthen the pace of budgetary consolidation and debt reduction so as to ensure a safety margin against breaching the 3% deficit threshold is attained, preferably already in 2008".

But balancing the books will not be easy in the current economic turmoil. It is expected that growth forecasts detailed in France’s mid-term budgetary plans, submitted to the Commission in November, will have to be revised downwards in light of recent developments.

France’s forecasts for this year’s budget, unveiled in September, set gross domestic product (GDP) growth between 2% and 2.5%. The figures, which would maintain the deficit at similar levels, were widely viewed as being optimistic before markets plunged this month.

Last week (23 January), the French government was presented with a list of recommendations aimed at boosting economic growth by former presidential adviser Jacques Attali. Among reforms suggested were the deregulation of restricted professions, such as pharmacists and taxi drivers, and the elimination of the country’s 100 départements.

Attali calculated that reforms could bring France’s public debt down from 64% to 55% of GDP. A Commission official declined to comment on the suggested reforms, but said that France needed to "consolidate faster".

Nicolas Véron, a research fellow at Brussels-based think-tank Bruegel, said that there was no doubt among economists that the Attali recommendations were what France needed. The Attali report, he said, went "very strongly against a number of entrenched special interests which have protected against competition from new entrants".

"From a political point of view, it’s not clear what short-term political advantage [President Nicolas] Sarkozy would gain from it," he added.

Sarkozy courted controversy in July when he came to a meeting in Brussels of eurozone finance ministers to announce that France would need two years beyond an agreed deadline to balance its budget. The deadline of 2010 had been set in April by the EU’s finance ministers.

Italy, which is currently experiencing political turmoil with the resignation last week (24 January) of Prime Minister Romano Prodi, was also warned yesterday about the state of its finances. Italy is currently in breach of the EU’s deficit ceiling of 3% of GDP.

French finances

France’s budget deficit for the first 11 months of last year totalled €54.7 billion, according to figures released by the finance ministry this month. General budget spending went up from €242.21bn last year to €246.42bn, with a modest rise in revenues from €196.28bn to €199.58bn.

France will come under further pressure to bring its finances under control at a meeting of EU finance ministers next month (12 February).