Thursday, 14 August 2014

France Risks EU Deficit Clash After Scrapping Targets

Photographer: Andrew Harrer/Bloomberg
Francois Hollande, France's President, is struggling to boost business confidence and... Read More
The French government abandoned its 2014 deficit targets after the economy unexpectedly failed to grow for a second straight quarter, risking a clash with European partners striving to meet their own fiscal goals.
Finance Minister Michel Sapin said that European policy is partly to blame for the lack of expansion in Europe’s second-biggest economy. Gross domestic product stagnated in the three months through June, national statistics office Insee said today in Paris. Economists forecast a 0.1 percent gain, a Bloomberg survey showed.
Sapin’s comments will fan a debate about France’s repeated inability to meet European Union fiscal rules it helped write, as other EU members cut spending and conduct painful reforms to
help meet their own deficit targets. The European Commission has already allowed France to delay deficit targets twice in the wake of the region’s sovereign debt crisis.
“There are European causes and there are French causes for the lack of growth,” Sapin said on Europe 1 radio. “The rules allow flexibility for the situation we are facing.”
The French government now predicts full-year growth of 0.5 percent instead of 1 percent announced previously. This year’s deficit will exceed the limit of 4 percent of economic output agreed less than four months ago with the commission, the EU’s executive body.
While Sapin declined to comment on next year’s deficit, he called for the budget shortfall to be reduced at an “appropriate pace,” suggesting the deficit will exceed the 3 percent goal set for 2015.

German Clash

The remarks chafe with those of German policy makers. German Finance Minister Wolfgang Schaeuble, who has overseen a balanced budget and plans no new debt from 2015, said July 18 that he expected France to hold to its 2015 commitment, noting that it had already benefited from deficit-reduction delays.
France should stop pleading for more support from Germany and accelerate measures to overhaul its economy, Bundesbank President Jens Weidmann said yesterday.
“France needs to set an example with its budget,” Weidmann said in an interview published in Le Monde newspaper. “Paris needs to stop asking for growth-enhancing efforts from Berlin and concentrate on its own structural reforms.”
European Central Bank President Mario Draghi, who has steered the ECB into providing unprecedented monetary stimulus, has said further reforms by euro-zone governments are the key to a turn-around.

German Slump

In Germany, where international trade has powered the nation’s recovery from the last recession, growth is being hurt as Europe applies sanctions on Russia, the Chinese economy slows and much of the EU remains stagnant or in recession.
German’s economy, the region’s biggest, contracted in the second quarter for first time since 2012, the Federal Statistics Office said today. Euro-area GDP data is scheduled for 11 a.m. today.
In France, by contrast, domestic demand represents the bulk of the economy. President Francois Hollande, a Socialist who won power two years ago, is struggling to boost business confidence and investment while squeezing public spending.
“France has a problem of competitiveness and exports,” said Francois Cabau, an economist at Barclays. “What that government can do to bolster growth is provide clarity on its policies for the next two years and implement the reforms it has promised.”

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