France's euro partners fear deficit delay will hurt credibility

BRATISLAVA Wed Feb 20, 2013 6:55pm GMT

The French national flag is seen on the top of the Bordeaux city hall, February 19, 2013. REUTERS/Regis Duvignau

The French national flag is seen on the top of the Bordeaux city hall, February 19, 2013.

Credit: Reuters/Regis Duvignau

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BRATISLAVA (Reuters) - France's European partners raised alarm on Wednesday about the possibility of giving Paris more time to meet the European Union's public deficit target.

Officials from Slovakia, Austria, and Finland said such a step could harm credibility at home and with international investors.

France has acknowledged that it will miss its 2013 growth target as well the European Union's 3 percent of gross domestic product deficit goal this year, adding to concerns that the euro zone's second-largest economy after Germany is on the brink of recession.

And even though France is not worried about its fiscal credibility if exceptional circumstances require it to push back its public deficit target, its European partners are.

"It would be hugely detrimental for our (EU) credibility," Harald Waiglein, director general at Austria's finance ministry told a conference in Bratislava about the future of Europe. "France could be a bit more ambitious."

"We risk giving off the impression that we are lax."

Slovakia's Finance Minister Peter Kazimir also thought giving France more time was "not a good idea".

"Germany and France are the godfathers of Europe," Kazimir said, speaking at the same event, referring to the countries' decisive role in driving European integration after World War Two to secure peace.

"The nominal deficit targets are very important, especially for foreign investors. We notice this when we go on these road shows to Japan and elsewhere. This is mainly about psychology. And we are still experiencing times that are extra-ordinarily delicate for countries like Slovakia."

FACTS VERSUS FIGURES

The European Union's top economic official, Olli Rehn, last week opened the door to giving countries more time to cut their deficits as long as they could demonstrate that their underlying deficit-cutting measures were serious.

The EU Commission last year granted some leeway to Spain.

While nominal headline figures are crucial for the public to gauge a country's reform progress, the more complex structural view gives experts a better idea about a country's health.

"Both measures are pretty important," said Spain's Treasury Secretary General Inigo Fernandez de Mesa. "At the end of the day, what we should aim at is a reduction in the nominal deficit, which is the one that is going to reduce the level of debt and ... what markets are looking at."

Spain had made a huge effort in structural terms last year, he said, which "had a very important impact in nominal terms, being close to the deficit what we have agreed in Europe".

But without public support, reforms may fail.

"There has to be this national ownership, otherwise we are lost," Martti Hetemaki, under-secretary of state at the Finnish finance ministry.

"If the rules that have been commonly agreed are not implemented then there is a question about the credibility of institutions and what is commonly being done. We would have a big problem then in terms of ownership of policies," he said.

Tens of thousands took to the streets of Athens on Wednesday during a nationwide strike against wage cuts and high taxes that kept ferries stuck in ports, schools shut and hospitals with only emergency staff.

"There is no question that structural reforms deliver in the longer term, but how long is longer term?" asked Panos Tsakloglou, chairman of the council of economic advisers to the Greek finance ministry in a panel discussion in Bratislava.

"If there are no growth prospects down the road this can become a problem," Tsakloglou said.

(Reporting by Martin Santa. Editing by Jeremy Gaunt.)

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