France drifting towards eurozone danger

8 Nov

France could be slipping into dangerous territory with its bid to bring excessive spending back within EU limits next year expected to fail, the EU said Wednesday.

Falling further behind euro anchor Germany, which is tipped to be near or at balanced budget between now and 2014, France will have a public deficit of 3.5 percent of gross domestic product in 2013, compared with the French target of 3.0 percent, according to the European Commission’s Autumn economic forecasts.

“The difference with the official target mainly stems from divergent macro-economic scenarios, the one underlying this forecast being less benign,” the Commission noted in the section of its report devoted to France.

The Commission tipped a “somewhat lower impact of revenue measures compared with the official estimates” as Paris tries to combat tax evasion, reduce corporate income tax credits and instill a “slightly more dynamic public expenditure.”

With France’s debt-to-GDP ratio also set to hit 90 percent by the end of the year, “prospects for an imminent recovery have waned,” the EU’s executive arm said, citing rising unemployment and tax hikes.

It also warned that a “persistent deterioration in external competitiveness observed over the last 10 years is not likely to be reversed in the medium term.”

That contrasted with initially positive results showing that bailed-out EU countries were raising their shares of exports.

Against that backdrop, the report underlined that “French companies are set to continue to lose export market shares.”

France is nonetheless in better shape than Spain, where the public deficit is forecast to veer way off agreed targets over the next two years.

With an unemployment-plagued economy stuck in recession through 2013, Spain is expected to be burdened with a public deficit at 6.4 percent of GDP in 2014, far above its 2.8 percent target.

Reluctant to call for a debt bailout, Spain’s economy will shrink by 1.4 percent this year and next, the Commission said, characterising the country’s pain as “rebalancing … in the midst of recession.”

Spanish unemployment is tipped to hit 26.6 percent of the workforce in 2013, from below 14 percent for the years from 1992 to 2008, and the economy would thus likely witness “a profound shift in the composition of GDP growth away from domestic demand.”

The EU insisted that Spain’s public finances “be brought back onto a sustainable path,” and issued a pointed call for this to take place also in autonomous Spanish regions.

They are considered troublesome in Brussels, owing to “broad-based revenue shortfalls, higher interest payments and rising social transfers.”

However, the report maintained that “resilient exports should continue to provide some cushion to otherwise very weak economic growth.”

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