France beats EU deficit targets in boost for Macron

PIC: France's return below the EU deficit limit is good news for Macron's government. (Credit: AFP)

ECONOMY

FRANCE - France reported a smaller-than-expected budget deficit for 2017 on Monday, respecting EU rules on overspending for the first time in a decade in further positive economic news for President Emmanuel Macron.

The French national statistics agency INSEE reported that the budget deficit was equivalent to 2.6% of gross domestic product last year, better than expectations of 2.9% and far below the 3.4% of 2016.

Though a clampdown on spending had begun under previous Socialist president Francois Hollande, Macron's government claimed credit for the efforts since his election last May.

"We have honoured our commitments," Finance Minister Bruno Le Maire told France Info radio, as he welcomed the "good news" on Friday morning.

"It is proof that the strategy laid out by the president of the Republic on reducing public spending, realigning our public accounts and growth is the right one," he said.

Macron, a 40-year-old centrist, has vowed to balance France's books by the end of his term in 2022 which would be the first time the country was in the black since the 1970s.

One of the first acts of his government was to pass an interim budget for the second half of 2017 which included unpopular measures to cut housing benefits and defence spending.

But rather than measures to shrink the state, INSEE stressed that the improved budget for 2017 was mostly down to increased tax receipts from higher economic growth, which hit 2.0 percent over the year.

Public spending rose by 2.5% in V2017, after an increase of 1.0% in 2016, with most of the spike coming from local authorities, the statistics agency said.

'Debt volcano'

Overhauling the country's public finances is seen as essential for Macron as he pushes for broader reforms in the European Union, including new public spending efforts for weaker members.

"To be continued, in order to get our accounts in order after 40 years of imbalance!" Budget Minister Gerald Darmanin wrote on Twitter.

France has broken EU rules on budget deficits every year for the last decade, consistently exceeding a limit of 3.0% of GDP under rules which bind all members of the bloc.

France and Spain are now the only eurozone countries to remain under the EU's "excessive deficit procedure".

To be given the all clear, Paris must register a deficit-to-GDP ratio of under 3.0% for another year.

It also remains in breach of debt rules with its debt equivalent to 97% of GDP at 2.2 trillion euros in 2017, far above an EU threshold of 60 percent.

France's public finance watchdog urged Macron to go further in reducing the country's deficit and debt at the beginning of February.

The Cour des Comptes, the watchdog, echoed remarks from the European Commission, which polices fiscal policy in the EU, and the International Monetary Fund which remain concerned by the scale of French overspending.

"We are dancing on a volcano that is rumbling ever louder," Prime Minister Edouard Philippe told lawmakers in July, referring to the debt problem.

AFP