–Adds Details From 2012-2016 Stability Program

PARIS (MNI) – The French government confirmed Wednesday that it
aims to bring public finances into balance by 2016, assuming that
economic growth will be above potential after 2013.

Without surprise, the multi-year Stability Program for submission
to European Union authorities is very close to the fiscal platform of
President Nicolas Sarkozy in his campaign for re-election, with two
thirds of the E115 billion in consolidation measures on the spending
side and one third coming from higher revenues.

“Our effort is concentrated on reducing spending via reforms, which
is the necessary condition for consolidation without throttling growth,”
stressed Budget Minister Valerie Pecresse in presenting the program to
the Finance Committee of the National Assembly.

With the first round of the presidential elections less than two
weeks away, the debate between committee members of the governing
center-right party and those of the leftist opposition was particularly
intense, echoing the punches exchanged among the leading candidates.

“Who can believe you will reduce the deficit when you’ve let it
rise over the past five years?” demanded Socialist committee member
Pierre-Alain Muet, citing the rise in the structural shortfall —
excluding effects of the crisis — since 2007.

Finance Minister Francois Baroin underscored the need to stick to
the fiscal trajectory after the elections, citing the latest pressures
on Spain as an example of the persisting fragility of financial markets,
despite the massive liquidity injected by ECB. Any deviation from the
deficit targets would pose a “serious risk” for France, he warned.

For the current year, the program incorporates the recent upward
revision in the GDP growth assumption to +0.7% — more than the
relatively optimistic forecast of the European Commission for +0.4%.
Citing the national statistics institute’s projection for a statistical
GDP carryover of +0.5 point at mid-year and the recent upturn in
business sentiment, the document argues that this growth target is
within reach.

For next year, GDP growth is expected to accelerate to 1.75% as the
Eurozone pulls out of its slump and financial market tensions abate.

From 2014 onward, annual GDP growth is projected at 2.0% — more
cautious than in previous Stability Programs but still optimistic, given
that potential growth is estimated at only 1.7%. The government is
counting on a boost from its reforms to enhance competitiveness and a
0.5% annual increase in the active population due to the gradual rise in
the legal retirement age.

“The reduction in deficits is not the enemy of growth,” Pecresse
argued. “On the contrary, it’s the best ally of healthy, solid and
lasting growth.”

The fiscal strategy of the government is to freeze spending in
nominal terms over the forecast period, excluding pension outlays and
interest charges. The annual rise in health care spending would be
limited to 2.5%. Public spending as a share of GDP would decline from
55.8% expected this year to 52.6% by 2016.

On the spending side, over half of the E75 billion effort needed
over the next four years has already been approved by parliament,
Pecresse noted. The remaining cuts will be shouldered mainly by the
central government, but local governments and the social security system
must contribute as well, she said. “It’s a lot, but it’s realistic.”

On the revenue side, E32 billion of the targeted E40 billion
increase is already on the books as well, the minister reminded. A
marked rebound in corporate profit receipts is expected as growth
returns.

The Stability Program does not include some E9.5 billion in outlays
the candidate Sarkozy has pledged during his campaign and which are to
be financed largely by cutbacks in other areas.

The European Commission is expected to deliver its evaluation of
the program by the end of June, after the new government has taken
office. Socialist candidate Francois Hollande argues that he would not
be bound by the fiscal program of his predecessor and intends to push
back the target for balanced public finances by one year to 2017.

–Paris newsroom +331 4271 5540; email ssandelius@marketnews.com

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