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Paris: France failed to keep its budget promises to the European Union (EU) in 2007, when slower than expected growth widened the public deficit for the first time in four years, data showed.
The euro zone's second biggest economy ran a budget deficit of 2.7 per cent of gross domestic product, above the 2.4 per cent goal fixed by President Nicolas Sarkozy's government and up from 2.4 per cent in 2006.
The government blames the economic slowdown for the slippage and has said it will revise up its 2008 public deficit projection from 2.3 per cent because it has cut its growth forecast for this year to 1.7-2 per cent from 2-2.5 per cent.
A slump in consumer confidence to record lows in March, which was also reported yesterday, confirmed economists' gloom about the outlook for growth this year and next.
"Clouds are gathering over the economy," said Olivier Gasnier, economist at Societe Generale.
"The public deficit will probably be contained below [the EU limit of] three per cent in 2008 but the 2009 outlook is not good and the government will be forced to choose between tightening budget policy or allowing the deficit to slip beyond three per cent."
Yesterday's data revised up fourth quarter GDP growth to 0.4 per cent from a first estimate of 0.3 per cent but full year growth was left unrevised at 1.9 per cent, below the 2-2.5 per cent forecast on which Paris had based its 2007 budget.
France is not the only euro zone country which is having to downgrade its growth hopes for this year in the face of a global credit squeeze, a US economic slowdown, a strong euro, and high oil prices.
"Today growth is well below what was forecast by all our European partners even if France is doing rather better today than Germany in terms of growth, even if public deficits are bigger in Britain," Budget Minister Eric Woerth said.
No sympathy
But such arguments are likely to win a less sympathetic hearing because other EU states had branded France's fiscal goals insufficiently ambitious and the European Commission had deemed its initial growth estimates overly optimistic.
Woerth, who disclosed the 2007 deficit figures in a radio interview about an hour before their official release, attributed the budget slippage to local authorities' spending but analysts also cited overruns in social security outlays.
"For 2008, new measures have already been implemented to limit the social security deficit and the deficit of local authorities may stabilise post-(municipal) elections," said Dominique Barbet, senior economist at BNP Paribas.
"The main issue is the central government deficit, and given growth will be once again below the target, the government will have to find new sources of income in order to match the three per cent limit. Forget about the 2.3 per cent deficit target."
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