French Deficits Without Tears

Or so they apparently think:

PARIS, Oct 2 (AFP) - France's budget deficit, already on track to exceed three percent of output this year, will widen even further in 2006, despite a series of budget promises aimed at reining in spending, economists say.

If, as widely expected, the public deficit overshoots the government's target of three percent of gross domestic product in 2005, it would mark the fourth straight year that France had failed to respect the eurozone's Stability and Growth Pact.

Overall debt, for its part, would remain well above the pact's threshold of 60 percent of GDP both this year and next, a breach that was openly acknowledged by the government in its 2006 budget presentation on Wednesday.

In effect, the budget has been built on spending and growth forecasts, including economic growth of 2.25 percent next year, which few economists consider attainable.

"The growth forecast is a risky bet," said Emmanuel Ferry, chief economist at Exane BNP Paribas. He added that the government's goal of keeping the debt-to-GDP ratio limited at 66 percent is "totally unrealistic".

Ferry sees this ratio reaching 70 percent next year.

....This would put France on track for another confrontation with the EU Commission, which in theory could impose fines until Paris brings its finances back into line with the stability pact commitments.

But economists said that concerns about sustaining European growth would keep the commission from proposing sanctions, and France would likely get away with just a slap on the wrist, as it did in 2003, when deficits in both France and Germany exceeded the three percent limit for the first time since the launch of the euro.