The French government on Wednesday presented a 2012 austerity budget, promising to balance strained public finances but warning that eurozone debt “turbulence” could yet derail timid growth.
France’s public deficit will reach 5.7 percent of gross domestic product this year, before dropping to 4.5 percent in 2012 and then to the European Union limit of 3.0 percent in 2013 and 2.0 percent in 2014.
For the first time, the government also undertook to bring the deficit down to 1.0 percent in 2015 as it seeks to put the public finances in order.
However, France’s total, accumulated debt will be higher than previously expected, largely because of France’s contribution to rescue funds for bailed-out eurozone countries such as Greece, Portugal and Ireland.
Already expected to reach a record 85.5 percent of GDP this year, accumulated debt will hit 87.4 percent in 2012, half a percentage point higher than the previous estimate.
Debt will be 87.3 percent of GDP in 2013 before dropping to 86.2 percent in 2014 and 84.1 percent in 2015 — leaving it still well above the EU ceiling of 60 percent.
France has already revised down its growth forecast for this year and 2012 to 1.75 percent, although many experts believe that figure still to be over optimistic.
President Nicolas Sarkzoy’s right-wing government admitted that only “a dissipation of current turbulence will allow us to reach 1.75 percent growth in 2012,” leaving the door open for a further revision downward.
Volatility caused by “bad news” over the summer, including the slowing of the US economy and market tensions over the eurozone sovereign debt crisis, could increase consumer and business caution, the government said.
The budget forecasts that the cost of servicing the public debt will come in at 48.8 billion euros ($66.5 billion) in 2012, down from the last government estimates in July of 50 billion euros.
But the debt payments will still be the budget’s largest outgoing, ahead of the 45.5 billion euros spent on education.
The tax burden is set to rise to 44 percent of GDP next year from the 43.2 percent in last year’s budget, hitting the same level as when Sarkozy took office in 2007.
France’s national statistics office said Wednesday that the economy stagnated in the second quarter with zero-percent growth.
World markets have been rocked by rumours that France might be stripped of its top triple-A credit rating and that its banks were overexposed to the debts of weaker eurozone countries, especially Greece.
Prime Minister Francois Fillon on August 24 unveiled a 12-billion-euro deficit cutting package that raised taxes on the rich and closed tax loopholes in the hope of preserving the envied triple-A credit rating.
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