Growth Champion Hollande Faces French Deficit Test

12 May 2012

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France's newly-elected President Francois Hollande

President-elect Francois Hollande said on Friday that France's public finances were worse than indicated by the outgoing conservative government after the European Commission forecast Paris would miss its deficit target next year.

Hollande is leading a drive to shift Europe's focus away from budget discipline toward growth but may now be forced to make fresh cuts to public spending or raise taxes more than planned at home if France is to stick to EU-imposed deficit limits, reports Reuters.

Despite his high profile challenge to euro zone austerity the incoming president, who beat Nicolas Sarkozy in a run-off vote on Sunday, pledged throughout the election campaign to respect a commitment to cut the deficit to 3.0 percent of GDP in 2013, providing growth remained solid.

However, the European Commission forecast on Friday that the public deficit would fall to only 4.2 percent in 2013 from an estimated 4.4 percent this year, estimating that growth would be 1.3 percent instead of about 1.75 percent expected by the government and Hollande.

Private economists are even more pessimistic about France's deficit with a Reuters survey of their forecasts showing an average estimate of 4.6 percent in 2013. In 2011, the deficit fell to an estimated 5.2 percent.

Hollande, who has ordered an audit of the state accounts for the end of June from the "Cour des Comptes" public auditor, said the commission's forecasts vindicated his suspicions that Sarkozy's government has not painted an accurate picture of finances.

"I've known for several weeks that there's been a worse deterioration of our public accounts than what the outgoing government has said," he told journalists in his rural base of Tulle, central France.

"Now we have the confirmation and it's worth looking at and analysing. I will wait for the report from the Cour des Comptes before taking the necessary decisions," he added.

If the audit turns up nasty surprises, Hollande may have little choice but to sacrifice some of his campaign promises and freeze some spending or risk exposing France to a financial market backlash.

Tags: Politics, World, 2 HOLLANDE, French, DEFICIT TEST

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