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Friday, November 14, 2014 8:28 PM

France Fesses Up: "Deficit in 2014 Much Higher than Expected", Budget Needs Revisions Yet Again

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France has been in constant violation of eurozone deficit rules for years, but then again, so has nearly every other eurozone country.

Spain and France Deficit Violations

Both Spain and France have constantly pushed back goals to meet stated targets. Spain has pushed back deficit targets at least six times by my count (official count may vary).

I also have pages on France violations of deficit rules.

Broken Promises

Other sources report similar stories. For example, please consider this Reuters September 2014 headline: France Breaks 2015 Deficit-Cutting Promise.

France announced on Wednesday it was breaking the latest in a long line of promises to European Union partners to cut its public deficit, conceding it now would take until 2017 to bring its finances in line with EU rules.

The statement by Finance Minister Michel Sapin follows weeks of hints by Paris that weakness in the euro zone's second-largest economy would prevent it bringing the deficit below the EU ceiling of 3 percent of output next year as promised.
The Agreement

France agreed to cut its budget deficit to 3% by 2015. I am sure we can find agreements for prior years.

Here's the humorous part (from September):
Sapin insisted France was not seeking to change or suspend the rules but wanted the deteriorating outlook for growth and inflation this year and next to be taken into account.
No Change in Rules?

On November 1, and in regards to France, The Economist says Budget, Fudge It.
France had set itself up for a collision in September, when President François Hollande’s government unveiled its growth forecast. This showed that the country would fail to cut its budget deficit, as it had promised, to 3.8% of GDP this year and 3% next. Instead, the deficit would rise to 4.4% in 2014, before dropping back to 4.3% next year. France, announced Michel Sapin, the finance minister, would not reach the euro zone’s 3% ceiling, originally promised by 2013, until 2017.

Amid rising frustration with France, Jyrki Katainen, the outgoing economics commissioner, asked Mr Sapin to explain why they were planning to miss their targets. Having initially insisted that they would not be bossed about by Brussels, the French then gave in. Two days before the commission’s verdict was due, Mr Sapin told Mr Katainen he would find an extra €3.6 billion ($4.6 billion) in revenues in 2015, enabling him to cut the budget deficit next year to 4.1%.
4.1% Next Year? Really?

The compromise, as usual, was to give France more time if France went half-way.

After rounds of infighting, France said something to the effect "OK we will reduce our deficit from 4.4% to 4.1% in 2015".

Flashback April 10, 2014: Bloomberg reports France Must Meet 3% Budget Deficit Target for 2015, Sapin Says
French Finance Minister Michel Sapin said his country needs to stick to a budget deficit target next year of 3 percent of gross domestic product to follow European Union rules.

The goal to reduce the shortfall from 4.3 percent in 2013 “is a target that we must maintain,” Sapin said today to reporters in Washington, where he is attending the spring meetings of the International Monetary Fund and the World Bank. “This is in the feasible range.”
In September we learned the shortfall rose!

Today we learn ....

Deficit Much Higher than Expected

Le Monde reports Government Deficit in 2014 Much Higher than Expected.
The government presented Wednesday, November 12, a draft amending budget for 2014, which represents slippage in the deficit. The deficit will reach 88.2 billion euros at the end of 2014, 4.3 billion more than what was expected this summer.

Weak business growth has indeed resulted in less revenue than expected in tax on company's VAT and taxation of financial products individuals.

Compared to the first's expectation Amending Finance Act passed in late July, 6.1 billion euro revenue is missing.

On the expenditure side, Bercy also found overruns of about 2.1 billion euros, mainly due to the cost of military operations abroad, personnel costs and mechanisms of solidarity as the income of active solidarity or the aid of State Medical.

Bercy also left unchanged its forecast deficit - which encompasses that of the State, social protection and local authorities - made in early September, which already included the deteriorating economic environment. Deficit will be 4.4% of gross domestic product this year, up from 4.1% in 2013, and then flow back slightly to 4.3% in 2015.
Weak consumer spending? A deteriorating economic environment? VAT shortfalls? Extra government spending? Deficit shrinkage to 4.3% instead of 4.1%?

Gee who coulda thunk?

Mike "Mish" Shedlock

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