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Last Updated: Nov 2nd, 2009 - 17:32:57 |
EUobserver - France's budget deficit will exceed 7 percent of its GDP in both 2009 and 2010, the country's Budget Minister, Eric Woerth, said on Sunday (21 June).
The announcement highlights the heavy toll being extracted on public finances by the government's stimulus plan and falling tax receipts, with the latest figure a considerable increase on a previous March forecast for a 5.6 percent deficit this year.
"This deficit is both the cost of the crisis and the price of recovery," said Mr Woerth on French television.
The budget deficit is likely to reach €115 billion this year, plus an additional €20 billion in social security deficit. At the same time, Mr Woerth predicts corporate tax receipts in 2009 will likely be less than half the €50 billion taken in a normal year.
French President Nicolas Sarkozy unveiled a stimulus packaged worth €28bn last December to help lift the country's economy – currently headed for a 3 percent contraction this year - out of recession.
Mr Woerth said the government had no choice but to spend heavily but added there was no chance of tax increases to help narrow the budget deficit.
This position contrasts sharply with that of the Baltic states where governments are being forced by strict euro area accession rules and international lenders to slash spending and increase taxes in order to curtail rising deficits.
On a brighter note however, Mr Woerth said the French economy could grow as much as 0.5 percent next year – better than many EU member states - but would still be hampered by rising unemployment.
Analysts say French unemployment could top 10 percent this year, having dipped below 7 percent prior to the onset of the economic crisis last year.
"The social security deficit will continue to increase and compensate for the fact that the state deficit will go down [next year]," said Mr Woerth, whose comments are likely to add pressure for a politically sensitive reform of France's pension system.
Last week French Prime Minister Francois Fillon said debate on whether to increase the country's retirement age was no longer a taboo subject.
No more spending, says Trichet
Separately on Sunday, the head of the European Central Bank, Jean-Claude Trichet, warned European governments against accumulating more debt.
"There is a moment where you cannot spend more and accumulate more debts. We are at that moment," Mr Trichet said during an interview on French radio Europe 1.
Further stimulus spending would present a serious problem for future generations to deal with he said, adding that the current packages were "completely extraordinary" and also "sufficient" to deal with the downturn.
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