February 5, 2015 / 10:10 AM / 3 years ago

EU executive sees little improvement in French deficit

BRUSSELS, Feb 5 (Reuters) - France's budget gap this year will be far above the EU limit of 3 percent of GDP and will not move in 2016 unless policies change, the European Commission forecast on Thursday, stepping up pressure on Paris to act before another evaluation in March.

French economic growth is to accelerate to 1.0 percent this year from 0.4 percent in 2014 and speed up to 1.8 percent in 2016, the Commission forecast.

But the Commission, which is the guardian of EU laws, said it expected the French deficit to narrow only to 4.1 percent of GDP this year from 4.3 percent last year, and stay at 4.1 percent in 2016 despite the faster economic growth.

European Union finance ministers in 2013 gave France until 2015 to bring its deficit below the EU ceiling after Paris missed a 2013 deadline.

However, France declared last year it had no intention of meeting the 2015 deadline either and could reduce the budget shortfall by 2017. But unless the European Commission recommends another extension to EU ministers, France faces a fine of up to 4 billion euros.

The Commission will assess French efforts to comply with EU deficit laws again in early March, along with progress made by Italy and Belgium, which are breaching EU rules because of their rising public debt.

The latest Commission forecast for the French deficit this year and next is more favourable than the 4.5 percent of GDP forecast for 2015 last November and 4.7 percent for 2016.

But it is still a far cry from the targets, especially the measures the Commission looks most closely at. The structural deficit, which excludes the effects of the business cycle and one-off revenues and spending, will also fall well short of requirements.

EU ministers have asked France to reduce its structural gap by 1.3 percent of GDP in 2013, 0.8 percent of GDP in 2014 and the same in 2015. The Commission forecasts show that France cut is structural deficit by only 1.0 percent in 2013 and 0.4 percent in 2014.

The reduction in 2015 is likely to be only 0.3 percent, the Commission said and the structural deficit will jump up again by 0.4 percent of GDP in 2016.

The high deficit and relatively slow growth will push French public debt up to 97.1 percent of GDP this year from 95.3 percent in 2014 and further to 98.2 percent in 2016. (Reporting By Jan Strupczewski; editing by Philip Blenkinsop)

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