IMF, EU seek less drastic cuts
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PARIS, Dec 30 AFP
December 30 2012, 8:14PM
The International Monetary Fund and European Commission officials have encouraged France and its eurozone partners not to fixate on deficit reduction targets if it would exacerbate the bloc's debt crisis.
The head of an IMF mission in France, Edward Gardner, urged officials in Paris last week to consider their 2013 budget targets "in a broader European context".
The IMF and the EU Commission expect the French public deficit to amount to 3.5 per cent of gross domestic product (GDP) next year.
They do not believe France can reach its three per cent goal, the eurozone limit, without additional measures that could aggravate an already tenuous economic situation.
"The credibility of the medium-term orientation policy" was more important than a specific deficit target, Gardner told reporters.
Loosening the criteria would "be more effective, more credible in a coordinated fashion" across the 17-nation eurozone, he said.
In Portugal the public deficit fell at the end of the third quarter to 5.6 per cent of GDP from 6.7 per cent at the same point a year earlier, while neighbouring Spain has promised to slash its deficit to three per cent by 2014 from a blowout shortfall equal to 9.4 per cent of output last year.
Germany expects its budget to be in balance this year, two years ahead of schedule, but IMF head Christine Lagarde has suggested that Berlin ease up a bit in its drive for healthy finances.
"Germany ... and others ... can allow themselves to go a little more slowly than others in the push to straighten out their public finances," Lagarde told the German weekly Die Zeit in comments published last week.
Her call echoed other European voices that are now arguing for greater emphasis on growth rather than austerity measures.
"The IMF is beginning to understand that the French situation has become dangerous," economist Marc Touati at the ACDefi consulting group said. Unemployment is climbing and the economy is still struggling, he said.
The IMF was "trying to prepare public opinion" for missed government targets, Touati said.
On Tuesday, the EU's "fiscal compact", a hard-won step towards tighter economic coordination agreed as part of efforts to tame the debilitating debt crisis, takes effect.
Finalised in March, 25 of the 27 EU member states accepted a "balanced budget rule" in the compact to ensure that governments would no longer run the massive budget deficits which drove the debt crisis and nearly sank the euro.
But as the European debt crisis drags on and economies flounder, the idea of allowing governments more time to straighten out their finances has gained ground.
European Economic Affairs Commissioner Ollie Rehn said last week that France needed more reforms rather than more austerity.
"Once you have a credible medium-term budget strategy, backed up by reforms, you can have a slower adjustment," Rehn told French daily Le Monde.
By Francois Becker