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France

France targets deficit with 2012 austerity budget

Text by News Wires

Latest update : 2011-09-28

The French government unveiled its austerity budget for 2012 on Wednesday, with a particular focus on deficit reduction. France faces pressure to reduce its deficit and enormous public debt in the face of stagnant growth.

AFP – The French government on Wednesday presented a tough 2012 austerity budget, promising to balance strained public finances but warning that eurozone debt "turbulence" could yet derail timid growth.

France's public deficit will reach 5.7 percent of gross domestic product this year, before dropping to 4.5 percent in 2012 and then to the European Union limit of 3.0 percent in 2013 and 2.0 percent in 2014.

For the first time, the government also undertook to bring the deficit down to 1.0 percent in 2015 as it seeks to put the public finances in order with barely seven months to go before a presidential election.

However, France's total, accumulated debt will be higher than previously expected, largely because of its contribution to rescue funds for bailed-out eurozone countries such as Greece, Portugal and Ireland.

Already expected to reach a record 85.5 percent of GDP this year, accumulated debt will hit 87.4 percent in 2012, half a percentage point higher than the previous estimate.

Debt will be 87.3 percent of GDP in 2013 before dropping to 86.2 percent in 2014 and 84.1 percent in 2015 -- leaving it still well above the EU ceiling of 60 percent.

Finance Minister Francois Baroin said the objective of debt reduction was "inviolable," while Budget Minister Valerie Pecresse warned that "we are being scrutinised" by the global financial markets.

France has already revised down its growth forecast for this year and 2012 to 1.75 percent, although many experts believe that figure still to be over optimistic.

"Even if it's difficult, it's not unattainable," said Baroin.

President Nicolas Sarkzoy's right-wing government admitted that only "a dissipation of current turbulence will allow us to reach 1.75 percent growth in 2012," leaving the door open for a further revision downward.

Volatility caused by "bad news" over the summer, including the slowing of the US economy and market tensions due to the eurozone sovereign debt crisis, could increase consumer and business caution, the government said.

The budget forecasts that the cost of servicing the public debt will come in at 48.8 billion euros ($66.5 billion) in 2012, down from the last government estimates in July of 50 billion euros.

But the debt payments will still account for the largest slice of the budget, ahead of the 45.5 billion euros spent on education.

The tax burden is set to rise to 44.5 percent of GDP next year from the 43.2 percent in last year's budget, and reach a record 45.4 percent of GDP in 2015 -- above the level when Sarkozy took office in 2007.

Sarkozy had then made an election pledge to reduce the tax burden by four percentage points.

France's national statistics office said Wednesday that the economy stagnated in the second quarter with zero-percent growth.

World markets have been rocked by rumours that France might be stripped of its top triple-A credit rating and that its banks were overexposed to the debts of weaker eurozone countries, especially Greece.

Prime Minister Francois Fillon on August 24 unveiled a 12-billion-euro deficit cutting package that raised taxes on the rich and closed tax loopholes in the hope of preserving the envied rating.

The defence budget will grow 1.6 percent in 2012 to 30.63 billion euros, excluding pensions.

France is hoping to reduce the costs of overseas operations in countries such as Afghanistan, where it is to start withdrawing its troops.

The cost of France's contribution to NATO's operations backing the Libyan rebellion was estimated at around 350 million euros.

The government is also to create a one-off tax on the turnover of large companies that are subject to carbon dioxide quotas, as called for by European Union rules, with the measure set to bring in around 200 million euros.

The proposed budget now goes to the National Assembly and the Senate, where the debate is expected to be particularly heated after the opposition won control of the upper house of parliament last weekend.

Date created : 2011-09-28

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