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France presents 'new measures' to appease EU over budget

27 October 2014, 19:30 CET
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(PARIS) - Crisis-hit France, which has come under fire from the European Union for breaking the bloc's spending rules, announced "new measures" and "clarifications" to its budget Monday to reduce its deficit by 3.6 billion euros ($4.6 billion).

Finance Minister Michel Sapin announced there were certain pieces of "good news", notably a reduction in interest rates that brought down the cost of financing the country's debt, that had allowed France to trim its deficit.

Paris has said that next year's deficit -- the shortfall between revenue and spending -- will hit 4.3 percent of annual economic output, far above the EU's 3.0 percent ceiling, and as a result Brussels could potentially demand changes to the budget.

EU Economic Affairs Commissioner Jyrki Katainen has written to Paris to demand explanations for the overshoot, according to a letter confirmed by French President Francois Hollande on Friday.

France shocked its European partners in September by going back on a pledge to get its deficit to below the three percent ceiling by next year.

Instead, it pushed back this target to 2017 -- the year of the next French presidential election -- putting the eurozone's second-largest economy on a collision course with Brussels.

"I think that France here is offering clarifications and elements that should allow us to stay on course" with the EU rules, Sapin told reporters.

He stressed that "the main budgetary rule for France is to achieve next year a reduction of at least 0.5 percentage points of gross domestic product in our structural deficit," he added.

The structural deficit is the core deficit of a country when the ups and downs of the economic cycle have been stripped away.

Sapin has sent a letter to the European Commission in Brussels, obtained by AFP, in which Paris stresses that it is sticking by the "two pillars" of its economic strategy.

Weighed down by high unemployment and sluggish growth, Hollande has pinned his hopes on a two-pronged effort to kickstart the economy: some 40 billion euros of tax breaks for businesses in return for job creation, financed by 50 billion euros in savings.

France's letter also states that Paris is "in line with the common rules agreed and the flexibility contained within them," adding that the budget was "adapted to the macroeconomic situation of the eurozone."

Brussels is expected to publish its response to the new measures on Wednesday, Sapin told reporters.

Outlining some details of the new deficit projection, he said that 400 million euros came from low interest payments on French debt and "between 300 and 600 million" from lower contributions to the EU budget.

Some 500 million would come from reversing some corporate tax allowances and 900 million from the fight against fiscal fraud.


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