France eyes bigger-than-planned 2017 headline budget deficit

PARIS Wed Apr 17, 2013 1:04pm BST

French Finance Minister Pierre Moscovici attends the questions to the government session at the National Assembly in Paris April 9, 2013. REUTERS/Charles Platiau

French Finance Minister Pierre Moscovici attends the questions to the government session at the National Assembly in Paris April 9, 2013.

Credit: Reuters/Charles Platiau

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PARIS (Reuters) - The French government acknowledged on Wednesday it would have a higher headline public deficit than planned by the end of its mandate in 2017, but said the underlying budget would be in surplus one year before that.

Paris is battling to persuade the European Commission and EU partners to grant it more time to knock its finances into shape after it conceded earlier this year it would break a promise to bring its deficit down to 3 percent of output in 2013.

In a new set of projections taking account of its weakening economy, France set its headline 2017 public deficit target at 0.7 percent of output, up from an earlier goal of 0.3 percent.

But at the structural level - a measure that strips out the impact of the economic cycle and which the European Commission has said is valid - the plan envisages a budget surplus of 0.2 percent of output in 2016 and of 0.5 percent in 2017.

"We are sticking completely to our plan, which is indeed aimed at cutting the deficit ... but which is above all an effort to put the country back on its feet, to restore competitiveness, growth and jobs," Finance Minister Pierre Moscovici said after presenting the projections to cabinet.

The new plan also showed that the public debt will peak one year later than planned in 2014. French debt will reach 94.3 percent of GDP in 2014 from a previous 90.5 percent target before starting to fall in 2015.

President Francois Hollande's government has pruned back its shorter-term forecasts to reflect a more pessimistic growth outlook and wants an extra year to bring its deficit down to an interim target of 3 percent of GDP originally slated for 2013.

The budget plan, presented at a cabinet meeting on Wednesday morning, will be sent to parliament next week.

Hollande's budget plan will be crucial in convincing France's euro zone partners to grant it more time to meet the 3 percent target, while debt-holders are watching for signs of more slippage on budget and growth estimates.

The government is basing its new fiscal plan, which it will submit to the European Commission, on growth forecasts of 0.1 percent this year, 1.2 percent next year and 2 percent on average in 2015-2017.

Critics warn, however, that France will struggle to meet even modest growth targets because consumer spending is drying up and company investment is stalled.

Still, government bond yields have so far been unharmed by the state's fiscal troubles and are at record lows, with Paris attracting yield-hungry investors looking for more safety than in the euro zone periphery.

(Additional reporting by Brian Love; Editing by Catherine Bremer/Jeremy Gaunt)

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