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UPDATE 1-EU executive sees French deficit little improved, calls for more
February 5, 2015 / 3:03 PM / 3 years ago

UPDATE 1-EU executive sees French deficit little improved, calls for more

* French growth to accelerate, but budget deficit won’t shrink

* France lags EU targets for nominal and structural deficit cuts

* Commission evaluation of French budget due Feb. 27

* EU executive calls for deeper 2015 structural deficit reduction (Adds Moscovici news conference)

By Jan Strupczewski

BRUSSELS, Feb 5 (Reuters) - France’s budget deficit this year will be far above the EU limit and will not move in 2016 unless policies change, the European Commission forecast on Thursday, stepping up pressure on Paris to act before an evaluation later this month.

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 faster economic growth.

European Union finance ministers in 2013 gave France a two-year extension until 2015 to bring its deficit below the EU ceiling of 3 percent of GDP.

However, France declared last year it would not meet the 2015 deadline either and would only hit the target in 2017. But unless the European Commission recommends another extension to EU ministers, France faces a fine of up to 4 billion euros ($4.6 billion).

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 far from the target, especially the measures the Commission looks most closely at. The structural deficit, which excludes the effects of the economic 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 its 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.

Even if the structural targets set by EU ministers were to be disregarded, EU rules set the minimum structural deficit cut at 0.5 percent of GDP every year until balance.

“Our estimate is that certain measures will be necessary to bridge this gap... there is a gap between 0.3 percent and 0.5 percent so an effort needs to be made,” EU Economic Affairs Commissioner Pierre Moscovici told a news conference.

He said the Commission was also looking at French structural reform plans and would make an evaluation of the country’s efforts to comply with EU budget rules on February 27.

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.

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. ($1 = 0.8757 euros) (Reporting By Jan Strupczewski; editing by Philip Blenkinsop)

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