World Economy

EU Urges France to Cut Deficit

EU Urges France to Cut Deficit EU Urges France to Cut Deficit

The European Commission, which polices the budgets of EU countries, urged France to reduce its deficit at a slightly faster rate than foreseen by Paris to meet the bloc’s budgetary rules by 2017.

According to a Commission proposal to be adopted by EU governments, Brussels believes Paris should trim the budget deficit to 4 percent of gross domestic product (GDP) by the end of this year, not the 4.1 percent level now targeted by the French government, Reuters reported.

Asked about the 4 percent recommendation for 2015, French Finance Minister Michel Sapin said France’s budget plans were converging with the Commission recommendations.

“We will wait for the final results of 2014 ... but I have no worries about respecting this difficult target, as long as we stick to our plans and respect our commitments,” Sapin said during a visit to Slovenia late Friday.

For France to reach a deficit of 2.8 percent of economic output by the end of 2017, which is the goal of the European Commission, the EU executive wants to see a deficit of 3.4 percent next year, not 3.6 percent as set out by Paris.

The Commission believes a quicker reduction will help France bring down its “structural deficit”, which measures imbalances between income and spending regardless of the economic cycle and highlights the persistence of budget problems.

The Commission will recommend to EU finance ministers at their next meeting in March that they accept a 0.5-percent structural deficit cut this year for France and ask Paris to present a major new reform plan in April.

Earlier this week, the Commission gave France until 2017 to bring its deficit below the EU limit of 3 percent of GDP, sparing Paris a fine and giving it a new grace period after it missed a second deadline to put its finances in order.

Despite its leading role in the EU, France has failed to guide the way in bringing budgets back into line since the eurozone’s debt crisis, missing goals to cut its deficit. President Francois Hollande’s Socialist government has argued against a German-led austerity strategy at a time of high unemployment.

But Germany, the European Commission and some economists believe higher deficits pose a risk to the economy because they are financed by borrowing, which in turn swells a country’s debt and drags on economic output or makes it vulnerable in a crisis.