Brussels, 20/08/2014 (Agence Europe) - The French minister for finance and public accounts, Michel Sapin, has called for changes to be made to the European budget policy, “to bring the pace at which public deficits are reduced into line with the current economic situation”.
“As a direct consequence of stagnant growth and insufficient inflation, France will not achieve its target this year in terms of its public finance deficit (…). Less growth, less inflation automatically lead to less revenue and, therefore, more deficit than anticipated, despite the reality of the efforts made to bring it down”, the minister said in an open letter published on Monday 18 August in the newspaper Le Monde. Under commitments made at European level, the French deficit should be brought down below 3% of GDP by 2015. It will be “above 4% of GDP in 2014”, Sapin admitted, although the French government had previously forecast a deficit in the order of 3.8% this year. This situation clearly raises the issue of whether the target laid down for 2015, and which has already been postponed twice, is realistic.
Amongst other things, France's problems in cleansing its public finances are down to flat-line growth. Stagnant in the first half of 2014, growth is not expected to exceed 0.5% of GDP this year and “as things stand, there is nothing that allows us to predict growth much above 1% to 2015”, Sapin said. This uninspiring growth situation has affected the whole of Europe (see EUROPE 11135).
Given this situation, the minister pledged that, despite internal grumblings, the French government would continue with the so-called supply policy it has undertaken: concretising the “responsibility pact”, giving €40 billion back to businesses to enable them to invest and to recruit staff, continuing to bring down public deficits “at an appropriate pace”, trimming €50 billion off public expenditure by 2017, including €21 billion in 2015, territorial reform and administrative simplification, fighting undue monopolies and making changes to the regulated professions.
Highlighting the urgent need to act at European level as well, Sapin said that the ECB should “make use of all of its possibilities” to fight the persistent low inflation levels (0.4% in the eurozone in July). A tacit call for the launch of a mass repurchasing operation targeting public and private assets (European-level “quantitative easing”). Europe should also promote a policy which favours public and private investment (our translation throughout). (MB)