Brussels, 10/07/2007 (Agence Europe) - Eurogroup President Jean-Claude Juncker said that French President Nicolas Sarkozy had attended the Eurogroup meeting to explain the economic policies and reforms that will be implemented in France. Juncker said he trusted Sarkozy's pledge to do everything in his power to restore equilibrium in public finances by 2010, growth permitting. The date agreed at the Berlin summit in April remains the official objective, but if the growth which is planned to be brought about by the reform process does not allow correction of the budget, the deadline will be extended for two years to 2012, explained Sarkozy at a press conference on Monday evening after his meeting with the 13 eurozone finance ministers. Money is needed to accompany the reform process and I cannot be expected to come up with immediate results from reforms introduced immediately, explained Sarkozy, adding that he was following the logic of the revised Stability and Growth Pact (SGP). However, in order to benefit from the flexibility of the SGP's preventive arm, France has pledged to provide details of the planned reforms in an updated version of its stability programme, to be submitted in September (rather than December).
When deciding on the adjustment trajectory to reach the medium-term budget objective for the member states, the Council takes account of the implementation of major structural reforms leading to direct cost savings in the long term - including boosting the growth potential. These therefore have a verifiable impact on the long-term viability of public financing, explained the SGP, noting that a detailed cost-benefit analysis of structural reforms has to be carried out if they are to be taken into account in defining the adjustment trajectory. Some of the impressive package of measures planned by France will have an immediate cost for the public purse and their long-term impact and effect on growth remains to be seen. The tax deduction of real estate loans, the scrapping of inheritance tax, and exempting overtime from social charges will cost 0.6% of GDP, for example.
At the Eurogroup on Monday evening, Sarkozy said that France would manage to bring its deficit down to 2.4% of GDP in 2007 and lower still in 2008. It will therefore not achieve the target of 1.8% it set itself in the most recent stability programme but Sarkozy explained that the people who made the commitment were not any more certain of being able to achieve it. On this basis, it may take some time to bring the budget back on track. Officially 2010 is still the target date but if it is not possible by then, Sarkozy said he would ask for the target to be postponed until 2012 because time would be needed for reforms to generate savings. The French president said he was not calling for time to put off the tightening of the budget, but rather time to apply the pact in an intelligent and dynamic way.
France will implement reforms and continue its budget consolidation pragmatically, explained Sarkozy, taking advantage of all the room for manoeuvre provided by the preventative arm of the SGP but remaining under surveillance (as Jean-Claude Juncker was at pains to point out). The Luxembourg prime minister and finance minister, who is also chair of the Eurogroup, said that the Eurogroup was happy to see that France was pledging to carry out some deep, substantial reforms, welcoming the fact that Paris would remain deeply anchored in the philosophy of cutting deficits. He welcomed, above all, the pledge to do everything possible to meet the mid-term objective by 2010, but was waiting to see the updated stability pact to get a detailed idea of the plans. The updated stability pact document will include an exhaustive list of reforms implemented and will contain two scenarios, explained Sarkozy, one for a level of growth which would make it possible to meet the target of budget equilibrium in 2010, and the other for a lower level of growth (possibly more realistic) whereby the target would be postponed until 2012. In line with the guidelines expressed in Berlin, France pledged to use all extra income arising from economic growth to cut deficits and cut debt levels, added Juncker.
Saying on Tuesday that Sarkozy had been heard, understood and encouraged in his reforms by the members of the Eurogroup, French Finance Minister Christine Lagarde said she hoped to see an extra percentage point of economic growth in France as soon as possible, while doing everything possible to respect the pledge for 2010. Required by the SGP to make a minimum 0.5% GDP adjustment a year, she admitted that this would have to be discussed with EU Economic and Monetary Affairs Commissioner Joaquin Almunia. After the ECOFIN Council on Tuesday, Almunia said that he would remain within the framework of the pact, and that at the Eurogroup meeting everyone had pointed out that reform and running a tight budget were complementary rather than contradictory. He said that at this stage, people had positive views but one would have to wait for the updated stability programme before this could be confirmed. Almunia said that despite fears that the pact might have been at risk, it had been boosted on Monday. (ab)