News ID: 168533
Published: 0313 GMT September 12, 2016

France may miss 3% deficit target in 2017

France may miss 3% deficit target in 2017

Nobody yet knows the winner of France's presidential election next year, but the smart money is on one loser: The three-percent cap on government deficits enshrined in eurozone rules.

A bedrock of euro stability for some, the requirement to keep government deficits to below three percent of gross domestic product is seen by many as an insufferable straight-jacket on governments wanting to spend their way out of economic sluggishness, AFP wrote.

Many French politicians, on the left and right, wonder aloud whether France should start ignoring the EU Commission and three-percent defenders, including powerhouse Germany, and break free.

"The European left, Social Democrats, should speak more about economic revival, about loosening the rules of the Stability Pact," Prime Minister Manuel Valls said at the end of August.

The EU's Stability Pact is meant to ensure public finances remain sound and has underpinned the austerity policies of many nations since the global economic crisis.

It was an unusual message from Valls, who has a reputation as a budget hawk and has several times pushed through deficit reductions sought by Brussels.

But his finance minister was quick to add that Paris would honor its promise to bring its public spending deficit down to 2.7 percent next year.

"That doesn't concern 2017, it is a debate on afterward," said Michel Sapin.

Even as he unveiled this past week billions in tax cuts to businesses and households for 2017, Sapin reaffirmed France would meet its deficit target.

"We've made that promise to parliament and EU authorities and we're going to keep it," he said in an interview.

But despite such promises, France's Court of Auditors warned recently that Paris risked again missing the three-percent target in 2017, after years of already doing so.

The EU has warned that France will not be allowed to exceed the three-percent deficit target again.

France "has been granted a delay of two years twice. This will not be extended again," EU Economic Affairs Commissioner Pierre Moscovici said in January.

But Sapin nevertheless considers the debate legitimate about the future of the EU budget rules given the changed circumstances, particularly the need for increased spending on security given the wave of terror attacks in Europe.

Such statements "clearly mark a change in direction", said Alain Trannoy, head of research at the School for Advanced Studies in the Social Sciences in Paris.

He noted that criticism of the pact, agreed in 1997 as preparations for the introduction of the euro stepped up, has spread across the political spectrum.

"The Maastricht and Lisbon treaties have bogged down the eurozone in crisis, locked it in absurd, obsolete and suicidal rules", said Arnaud Montebourg, a former Socialist economy minister who announced his run for the presidency last month.

The two treaties underpin the euro and public finance rules in the eurozone.

   
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