France to curb deficit but unlikely to meet 3% target

FRENCH Finance Minister, Mr Dominique Strauss-Kahn said yesterday the public deficit could be significantly higher than forecast this year and the government would take action, if needed, to curb it.

But he suggested it would not take the kind of drastic measures which might be needed to cut the deficit to precisely 3 per cent of gross domestic product, the target fixed by its main partner, Germany, to qualify for European Monetary Union.

"The target will be defined according to what the economy can bear," he told a news conference.

Mr Strauss-Kahn declined to forecast a figure for the deficit/GDP ratio this year, which he said must await the results of an independent audit of public finances due to be announced on July 21st.

But he noted forecasts ranged between 3.4 per cent, predicted by conservative parliamentarian and budget expert, Mr Philippe Auberger on Wednesday and 3.8 per cent, predicted by ministry officials before the June 1st parliamentary election.

He added that the trend over recent years showed the deficit falling by around 0.6 percentage points each year - with the exception of this year, when revenues had fallen well short of expectations. This should mean France would be able to continue cutting its deficit next year to meet European monetary union constraints, which seek to limit the deficit to 3 per cent of GDP both before and after the launch of the new euro.

France's Socialist-led government has said that the decision about who should join a single European currency should be based on a trend towards a 3 per cent GDP/deficit ratio as allowed by the Maastricht Treaty.

France's position, however, has put it at odds with Germany, which wants a strict interpretation of the Maastricht Treaty to ensure that the new euro is underpinned by sound fiscal policies.

Mr Strauss-Kahn said no decision had been taken on any measures needed to cut the deficit this year but these could involve taxes on companies, households and spending cuts.