France has broken its promise to bring its borrowing back to within EU limits and ruled out further austerity measures.
Presenting next year’s budget, France’s Finance Minister Michel Sapin pledged to respect EU rules but he blamed a fragile economy for what will be a two year delay.
“Within this negative economic background, the government has decided to maintain its economic strategy that was unveiled this spring and respect all its commitments. We take responsibility for the seriousness of the budgetary situation, we refuse austerity,” said Sapin.
Under the budget plan, the public deficit is set to fall from 4.4 percent of output this year to 4.3 percent next year, 3.8 percent in 2016 and 2.8 percent in 2017 – below the EU-mandated threshold of three percent.
With the government planning to cut spending by 50 billion euros, that would imply public debt ticking up to a peak of 98.0 percent of GDP in 2016 before a slight fall in 2017.
Several critics have warned that France is on the verge of a serious financial crisis unless it takes a drastically different course of action.
Economist Marc Touati said: “We need shock therapy. And this shock therapy has absolutely not been implemented, not under Sarkozy, nor under Hollande. The deficit and debt will continue to increase. For the moment it’s not too alarming because interest rates are very low, but one day, the markets will wake up, interest (rates) will rocket and we will have a Greek-type crisis in France.”
But the government will be hoping its allies in Rome, Athens, Dublin and Madrid support its argument that further austerity would be counterproductive and risks crushing the fragile shoots of recovery across the eurozone.