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European Commission warns France on 2013 deficit

30 May 2012, 14:00 CET

(BRUSSELS) - The European Commission warned France on Wednesday that hitting its deficit target of three percent of GDP by 2013 would prove difficult and urged it to do more to rein in public finances.

"Budgetary consolidation remains one of the main policy challenges in France," the commission said as it released report cards on eurozone economies.

"Although this year's target of 4.4 percent of GDP appears achievable, the distance to the three percent of GDP threshold remains significant," it said.

"French authorities need to specify the measures necessary to ensure that the excessive deficit is corrected by 2013," the commission added.

French President Francois Hollande, who took office this month after defeating right-winger Nicolas Sarkozy, has vowed to balance the country's budget by 2017.

But he has also raised concerns with plans to hire 60,000 teachers and partially reverse one of Sarkozy's key reforms by allowing those who have been working since they were 18 or 19 years old to retire at 60 instead of 62.

The commission said it was important that increases in public spending remain below potential GDP growth, "with special attention to the trend in social and local government spending."

It said "further efforts are needed to develop a tax system that is more conducive to sustainable economic growth" and warned that "the long-term sustainability of the pension system also remains a challenge."

The expected slowdown of France's economy, forecast to grow 0.5 percent in 2012 after 1.7 percent in 2011, "requires renewed resolve to address the situation in the labour market" and will spark an unemployment rise above 10 percent this year and next, it said.

The commission said France's export performance also "remains a significant challenge" and that since 2000 nominal wages have increased faster than productivity.

It also hit out at a lack of competition and innovation in the French business environment.

"Efforts are also needed to ensure that the general business environment supports healthy competition and innovation as, in certain areas, the overall regulatory framework and the burden of regulation remain a constraint for the development of firms," it said.

Specifically, it said efforts needed to be made to foster competition in the retail sector, electricity, rail transport and ports.

However the commission also noted that France's general government deficit was expected to decrease further in 2012 after falling from 7.1 percent of GDP in 2010 to 5.2 percent last year.

"Overall, the commission spring 2012 forecast projects a deficit of 4.5 percent of GDP, broadly in line with the target contained in the stability programme," it said.

France's Court of Auditors meanwhile hailed "the start of a consolidation strategy" in the country's budget but called for vigilance on four items in 2012: staff spending, tax loopholes, social spending and spending at public bodies, such as the Meteo France weather service or CNRS scientific institute.

The body also certified the 2011 accounts with seven "substantial reservations", the same number as in 2010, related to accounting procedures, internal controls on ministerial spending and other issues.


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