EU urges France to control budget deficit

“France has started an impressive number of reforms over the last year which were long due and, if continued, should contribute to increasing the country’s growth potential, leading to a continued reduction of unemployment through the creation of more and better jobs,” said Joaquin Almunia, EU Economic and Monetary Affairs Commissioner. “However, this process needs to be accompanied by a renewal of the budgetary consolidation that came to a halt in 2007 leaving no room for maneuver,” he added. France corrected its budget deficit to below 3% of gross domestic product in 2005, but last year’s figure remained at 2.7%, which the commission said indicated no improvement from 2006.

The European Union executive arm forecast in April that France’s budget deficit was set to hit 2.9% this year and could reach 3.0%, the maximum allowed for eurozone members, in 2009. While all 15 eurozone countries pledged last year to eliminate their budget deficit by 2010, French President Nicolas Sarkozy has made it clear his country might not be able to do so until 2012. Meanwhile, the ratio of the French debt to national GDP has begun to increase again after falling to 63.6% in 2006. In the early 1990s, it was less than 40%.

In its policy advice to France, the commission advised Paris to pursue the ongoing structural reform process aimed at increasing growth potential and competitiveness and at the same time carry out the necessary consolidation of public finances to support that process of structural reform. “Only by moving towards balanced budgets can the public debt be reduced and budgetary resources be freed up for growth-enhancing measures. I hope that budgetary consolidation and structural reforms will go hand in hand,” Almunia said.

It was the first time that the European Commission issued a policy advice to a member state as introduced in 2005 under the EU Stability and Growth Pact. The policy advice was regarded as a milder form of warning. (people.com.cn)