European finance ministers last week gave France until 2017 to bring its fiscal deficit below 3% of GDP, from an estimated 4.3% in 2014, the third extension since 2009 as it has consistently missed its targets. France is now required to cut its deficit to 2.8% of GDP in 2017, from 4.0% this year. This equates to an improvement in the structural deficit of 0.5% of GDP this year, 0.8% in 2016 and 0.9% in 2017. Capital Economics notes in a report on Monday:
- Although the additional oversight and conditions attached to the waiver might suggest that France is more likely to succeed this time around, we are still sceptical that the French Government will manage to meet these deadlines and successfully reduce its budget deficit.
- France faces an uphill task in bringing its budget deficit down and we think it could easily fail to meet the EC’s stringent deadlines, raising the chance of financial sanctions. And while structural reforms are sorely needed, austerity risks damaging France’s weak growth outlook even further.
- We think that it will still struggle to achieve the necessary fiscal consolidation given France’s prevailing political and economic backdrop.
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