– Adds Comments By Finance Minister On Fiscal Compact, Livret A

PARIS (MNI) – France will meet its public deficit target of 3% of
GDP next year, even if growth is weaker than the current forecast of
1.2%, Prime Minister Jean-Marc Ayrault said Wednesday.

Economic growth “cannot be decreed,” Ayrault conceded in a radio
interview. “We will adapt according to developments” on both the revenue
and spending fronts.

Economic growth is also an issue for the Eurozone, where France has
not yet obtained all the measures it had hoped for and more work needs
to be done, the prime minister said, noting that the future of monetary
union will be on the agenda of the discussion President Francois
Hollande will have with German Chancellor Angela Merkel on Thursday.

The European Central Bank must “if necessary play its full role” as
well, he added.

Ahead of the Franco-German summit, Finance Minister Pierre
Moscovici declined comment on whether France supported Greece in its
demand for a two-year extension to meet its deficit targets. “All I can
say is that France is committed to the integrity of the Eurozone,” he
told journalists at a later press conference.

A bill for the ratification of the EU fiscal compact will be
submitted to the cabinet on September 19, Ayrault said. Asked about
sceptics on the left wing of the Socialist Party, he said dissention was
“not possible.”

Moscovici implicitly rejected one argument of the sceptics
that the compact would limit national sovereignty in the fiscal sphere.
On the contrary, he countered, by reinforcing the credibility of
France’s determination to bring public finances into balance, its
ratification of the treaty would assure its sovereignty vis-a-vis
financial markets.

The prime minister did not rule out a hike in the broad-based CSG
tax on earnings and investment revenues next year, but he insisted that
this would be in the context of a reform of payroll taxes to reduce
labor costs.

A study on how to boost the competitiveness of domestic producers,
to be completed in October, is likely to reveal a need for more
investment in research and innovation but also a problem of labor costs,
he said.

The question of whether payroll charges alone should finance
pensions, health care and family assistance will be debated with unions
and employers, and the government will launch a reform in the first
quarter of next year, Ayrault said. “The debate is open and, I say, it
will be decided.”

The issue of competitiveness is closely linked to France’s E70
billion trade shortfall, of which E45 billion is due to the energy
deficit, the prime minister said. The remaining E25 billion gap must be
eliminated over the next five years, he said.

Ayrault said his government would tackle the problem of rising
petrol costs not via a cap on prices at the gas pump but rather through
fiscal measures, since a three-month freeze would be useless if prices
started climbing again afterwards.

While the current rise in petrol prices is due to the depreciation
of the euro and instability in oil producing countries, there is also a
longer-term upward trend that must be addressed with “alternative
solutions” like the expansion of public transportation and the
development of hybrid and electric autos, he argued.

A 25% hike in the upper limit on individual deposits in the popular
tax-free savings plan Livret A will be discussed at today’s cabinet
meeting along with the idea of a 100% increase in the ceiling for the
comparable Livret for Long-Term Development from E6,000 to E12,000, the
prime minister said.

The Livret A hike will help finance urban renewal and the
construction of 150,000 social housing units per year, while the
resources from the Livret for development are earmarked for small
business, he explained.

During his election campaign, Hollande had pledged to double the
ceiling for the Livret A, now at E15,300. Ayrault said the remaining
increase would come “according to needs.”

Moscovici stressed that the initial hike in the Livret A
ceiling – the first in more than two decades – was “a first step” to be
followed by a second 25% rise at the end of this year. At that time
there would also be a reform of the uses of the funds, lending terms and
the commissions banks receive, he said.

Part of the additional funds will also be available to meet
urgent, temporary financing needs of local governments and hospitals, he
said.

–Paris newsroom +331 4271 5540; e-mail: ssandelius@mni-news.com

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