France seen missing 2015 European deficit deadline - Reuters poll

PARIS Wed Apr 16, 2014 3:34pm BST

1 of 2. French President Francois Hollande (R) and Prime Minister Manuel Valls leave the weekly cabinet meeting at the Elysee Palace in Paris, April 16, 2014.

Credit: Reuters/Philippe Wojazer

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PARIS (Reuters) - France's public-sector deficit will overrun EU limits yet again next year, breaching a deadline that was already extended by two years and setting the stage for a clash between Paris and its European partners, a Reuters poll found.

The poll, published days before the government reports back to Brussels, highlights the challenge Paris faces as it insists, despite weak economic growth, that it will honour that extended deadline and trim the deficit to 3 percent of GDP in 2015.

"If it misses the target it would not be dramatic in itself but it would start seriously damaging France's credibility with its European partners and investors," said Jean-Louis Mourier, economist at Aurel BGC, a brokerage.

The median forecast in the Reuters poll, conducted April 10 to 14, showed the deficit coming in at 3.3 percent of GDP in 2015 before dropping finally in 2016 to 3.0 percent, the benchmark the European Union considers sustainable for euro zone members.

President Francois Hollande's government, which only last year won an extension of its deadline, is dogged by insipid economic recovery.

It is striving to meet its goals without deep spending cuts that could stymie the nascent recovery or further alienate voters after big losses in local elections at the end of March.

The median forecast in the Reuters poll put GDP growth at 0.8 percent this year, 1.2 percent in 2015 and 1.4 percent in 2016. That is well short of government targets of 0.9 percent in 2014, 1.7 percent in 2015 and 2.0 percent in 2016.

With weak growth weighing on tax income and public benefit spending buoyed by a jobless rate above 10 percent, the deeply unpopular Hollande and his ruling Socialist Party are cornered as his government prepares to report to the European Commission and euro zone partners on April 23 on its deficit reduction commitment strategy.

While it is under pressure at European level to honour promises to reach a 3 percent deficit by end-2015, at home it is trying to prevent voters, wary of cutbacks, straying to the opposition conservatives and eurosceptic National Front party in European Parliament elections next month.

Finance Minister Michel Sapin said this week the 2015 budget would be based on a deficit forecast of 3.0 percent of GDP as promised - a constraint that may force him to resort to one-off measures which would jar with the pledge of long-term reforms.

"I am not too sure the government is so committed - or even able - to have a large discretionary fiscal tightening," said Philippe Brossard, chief economist at insurer AG2R La Mondiale.

He is one of just two economists - from 15 who responded to the poll call on the deficit - who predict the government could get down to 3 percent or lower by the end-2015 deadline.

Before the March local elections forced Hollande to name a new cabinet, Pierre Moscovici, finance minister at the time, flagged a plan to cancel 7 billion euros of "precautionary" budget credits, a sort of "rainy day" fund for many ministries, to help honour France's European goal.

The new cabinet, headed by Prime Minister Manuel Valls who has irked many left-wingers by advocating strict adherence to deficit-reduction pledges, is expected to hold up plans for 50 billion euros of company tax relief and labour cost reduction over the next three years as proof it is serious about reform.

(Editing by Leigh Thomas and Susan Fenton)

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