Bloomberg News

French Twin Deficits Loom for Election Victor, Auditor Says

February 09, 2012

(Updates with government reaction starting in seventh paragraph.)

Feb. 8 (Bloomberg) -- France will have to step up efforts to reduce its budget and trade deficits after the April-May presidential election or risk a debt spiral, the national auditor said today in a report.

Europe’s second-largest economy had a record trade shortfall of 69.6 billion euros ($92 billion) last year, equivalent to about 3.5 percent of gross domestic product. Government spending exceeded revenue by about 5.4 percent in 2011, President Nicolas Sarkozy has estimated.

The figures show little room for fiscal maneuver will exist for Sarkozy or his successor as investors scrutinize accounts in light of Europe’s debt crisis. France, which was stripped of its AAA credit rating by Standard & Poor’s Jan. 13, must step up spending cuts to meet its deficit targets and keep the debt burden at less than 90 percent of GDP, the auditor said.

“It’s essential to prevent the markets from sensing any risk of France’s debt being unsustainable,” the auditor said today in a 1,073-page report. “The snowball effect would ensure that debt would quickly become uncontrollable.”

The auditor estimates that France had a “structural” budget deficit of 5 percent of GDP in 2010 and the government trimmed it by between 0.4 percentage point and 0.7 percentage point of GDP in 2011, the biggest such reduction since 1994. The 2012 budget contains a reduction of another 1.25 points.

Reducing Shortfall

To meet its target of cutting the total budget deficit to 3 percent of GDP in 2013 and eliminating it by 2016, France must reduce the shortfall by 1.4 percentage points next year and 0.9 percentage point in each of the following three years, according to the report.

The government said the auditor’s report was partly based on old figures, before the government cut its growth forecast and announced a narrower-than-expected budget gap for 2011.

“There will be no need for a third austerity plan because of the government’s prudent budgetary management,” Budget Minister Valerie Pecresse, the government’s spokeswoman, said after a Cabinet meeting today. “What the auditor is recommending is exactly what this government is doing.”

The tightening planned for this year “has only been exceeded twice in the past 20 years,” the auditor said. “It presumes a slowdown in spending that has not quite been achieved” and suggests that “more than half the work remains to be done.”

Spending Cuts

The auditor recommends the government focus on cutting spending rather than raising taxes. After increasing at a median of 2.2 percent a year through the last decade, growth in spending slowed to 1.4 percent in 2011 and will have to slow to 0.5 percent in 2013 and 2014, the auditor said. Government spending amounts to 56.3 percent of GDP.

France “will only be able to recover its credibility by setting out precise additional measures to meet its objectives,” the auditor said. “To bolster growth potential, taxes and social charges must also be shifted to improve the competitiveness of companies. In effect, it’s the twin deficits that need to be confronted.”

--With assistance from Gregory Viscusi in Paris. Editors: Jeffrey Donovan, Patrick Henry

To contact the reporters on this story: Mark Deen in Paris at; Helene Fouquet in Paris at

To contact the editor responsible for this story: Craig Stirling at

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