EU sets France tough deficit targets

(BRUSSELS) - The EU set France tough new targets on Friday to get its budget deficit back within Brussels rules, keeping up the pressure after giving Paris two more years until 2017 to toe the line.

The benchmarks were announced by the European Commission just two days after it extended the deadline for France, the bloc's second biggest economy after Germany, to meet the EU's deficit ceiling of 3.0 percent of economic output.

It said France must use the extra breathing room to reach a deficit -- the difference between government spending and revenue -- equal to 4.0 percent of annual Gross Domestic Product in 2015, 3.4 percent in 2016 and 2.8 percent in 2017.

France in December had set its own targets at 4.1 percent, 3.6 percent and 2.7 percent for the coming three years, but the Commission said Paris had not explained how it would achieve them, prompting Brussels to lay down the law.

French Finance Minister Michel Sapin, speaking during a visit to Slovenia, said the country would be able to meet what he described as "demanding" but "realistic" targets.

The European Union had disappointed fiscal hardliners when it said Wednesday France would escape possible fines for now and get two more years to get its house in order, while Italy and Belgium were let off the deficit hook because both were making adequate progress towards their targets.

- France must find savings -

To hit the EU's new targets France will have to find additional savings in a weak economy, putting the government on the spot as it tries to boost growth.

For 2015, the Commission, the EU's executive arm, estimated the savings required at 0.5 percent of GDP, up from the current 0.3 percent -- that means additional savings worth at least 4.0 billion euros ($4.5 billion).

But for 2016, Paris must find an even tougher 0.8 percent and then 0.9 percent in 2017, the Commission said in a series of recommendations.

"France should step up efforts to identify savings opportunities across all sub-sectors of general government, including at social security and local government level and use all windfall gains for deficit reduction," it said in a statement.

The European Union polices member state deficits and has the authority to impose large fines if they break the rules, although it has never actually done so.

Diplomatic sources said the EU's euro commissioner Valdis Dombrovskis had demanded Wednesday that Brussel begin infringement proceedings against France, laying it open to an initial fine equal to 0.2 percent of GDP.

German newsweekly Der Spiegel said Latvian Dombrovskis had some support, but EU Economic Affairs Commissioner Pierre Moscovici, a former French finance minister, argued instead that Paris should get three more years to sort out its finances.

Commission head Jean-Claude Juncker stepped in to demand a compromise solution, which will include very close oversight of French progress, the weekly said.

- France progress reports -

France has until June 10 "to report in detail the consolidation strategy that is envisaged to achieve the targets," the Commission statement said.

In addition, Paris will have to submit a first progress report on December 10, followed by updates every six months after that.

France, like many of its EU peers, has been in breach of the deficit limit for years and has won two previous deadline extensions.

But new rules adopted to tame the debt crisis have given Brussels much greater powers over national budgets.

At the same time, Germany, the bloc's paymaster and determined austerity advocate, insists the budget rules must be met if the EU is to achieve sustainable growth.

Berlin has been reluctant to cede any ground to France and Italy over their demands that austerity be eased at least slightly to give them more leeway to boost growth.

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