Hollande faces major challenge in curtailing France’s budget deficit

France missed its budget deficit target in 2012, as it will again this year, underlining the severe challenge facing President François Hollande's socialist government in meeting key commitments to its European partners on managing its public finances.

Official figures showed the nominal deficit last year was 4.8 per cent of gross domestic product, overshooting the government’s target of 4.5 per cent. The 2011 deficit was also revised slightly upwards to 5.3 per cent.

The government has already acknowledged it will overshoot this year's target deficit of 3 per cent previously agreed with the European Commission.

With the figure now forecast to hit 3.7 per cent, France is seeking a year’s delay from the commission for reaching the target, the level at which growth in the public debt should stabilise.

Much of the concern about France’s public finances stems from its high level of debt. The figures from Insee, the national statistics agency, showed the public debt, including France’s commitments to the euro zone’s rescue funds, rose to a record 90.2 per cent of GDP in 2012, slightly higher than target and up from 85.8 per cent in 2011.

France has not had a balanced budget since 1974 and is under strong pressure to cut its big public spending bill, which amounts to more than 56 per cent of GDP - the second largest in the EU.

Jens Weidmann, Bundesbank president, said earlier this month that the reform course in France appeared "to have floundered" and called on the government to stick to its agreed targets.

The finance ministry blamed the need to recapitalise Dexia, the failed Franco-Belgian bank, increased EU budget contributions, lower-than-forecast growth and the knock-on effects of the higher 2011 deficit for last year's slippage.

Pierre Moscovici, the finance minister, and Bernard Cazeneuve, the newly appointed budget minister, emphasised that the structural deficit – excluding one-off effects – had been reduced by 1.2 percentage points of GDP in 2012.

Financial Times Service