Growing divergences between Paris and Brussels on deficits

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The latest European Commission forecasts offer little hope that the French deficit will be brought below 3% by 2015, contrary to France's pledges, EurActiv France reports.

Pessimistic forecasts are piling up for the French economy. After the Court of Auditors warned the government on 11 February about its overly optimistic estimates about the reduction of the public deficit, it is now the European Commission’s turn to raise its concerns.

In its latest macroeconomic forecast published on 25 February, Brussels believes that France will see its public deficit increase to 4% of Gross Domestic Product (DGP) by the end of the year and remain at 3.9% in 2015.

At the EU level, the reduction of public deficits should continue. In 2014, the nominal budgetary deficit should drop to 2.7% of GDP in the EU and 2.6% in the eurozone.

French optimism

The French government has put forward far more optimistic figures. For 2014, the government hopes to bring deficits down to 3.6% of GDP before dropping to 2.8% in 2015.

This difference in forecast is embarrassing for France. Brussels is investigating the country's excessive deficit even though it was given two additional years to bring it under 3% by 2015, and the EU executive does not plan to give the country any additional extension of the deadline.

“France has a public finances trajectory that it presented to the European Commission and is sticking to it,” said Pierre Moscovici, the minister of economy and finance, without however committing on the 3% threshold.

Growing divergence

For Moscovici, the wide gap between the Commission forecast and those of the government are based on the fact that the EU executive’s calculations did not take into account recovery measures put in place by the government and its plans for a reduction of public expenditure.

At issue here is France objective of reducing public expenditure by €50 billion by 2017 and the "responsibility pact" in favour of private companies that was announced earlier this year.

“I will start a dialogue with Commissioner Olli Rehn in order to identify the divergences in our forecasts for reducing the structural deficit," the minister said. “We and Olli Rehn have a slightly different vision on structural efforts,” Moscovici explained.

For now, Brussels is cautious about challenging the reduction of the French deficit. Moscovici wants to wait for the execution of the 2013 budget, whose final figures will be published by the end of March and “then talk about 2014 and 2015.”

He also insisted on the fact that Brussels’ forecasts were “only forecasts”.

The Commission, for its part, simply points out in its report that the deficit targets are "under threat".

Growth perspectives in the EU

The French Minister of Economy and Finance pointed to the positive aspect of the Commission forecasts, which slightly reviewed upward its forecast for real GDP growth. In 2014, the European Union should see its GDP grow by 1.5% and 1.2% in the Eurozone. In 2015, economic activity should see an “acceleration by 2.0% in the EU and 1.8% in the Eurozone”, the Commission says.

“The recovery is gaining ground in Europe after the return to growth that happened in the middle of last year,” Olli Rehn said.

In terms of employment, the Commission does not foresee an improvement in the medium term. Unemployment is expected to increase to 11% in 2014 before stabilising in 2015, mainly due to sluggish growth rate. The European Commission forecasts a 1% growth this year and 1.7% in 2015 in France.

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