France - economy

French budget bets on growth amid record deficit

Article published on the 2009-09-30 Latest update 2009-09-30 15:21 TU

Economy Minister Christine Lagarde says France is not out of the woods yet
(Photo: Reuters)

France took a bet on Wednesday that its tentative economic recovery will eventually gain momentum, as the government revealed an annual budget based on running record deficits until at least 2011.

According to figures released with the budget plan, France's public deficit will grow to a record 8.2 percent of GDP this year and 8.5 in 2010.

Economy Minister Christine Lagarde described the document as a "post crisis budget", although she warned that France was not out of the woods yet.

Despite the massive budget shortfalls, stimulus spending will continue as France battles to shake off the effects of the global crisis, and businesses will be given more than 13 billion euros in tax cuts.

Deficit and debt levels will therefore not fall before 2011, and there is no prospect of returning them to the levels mandated by the euro-zone stability pact until beyond 2012, the government said.

Under Maastrict treaty rules, eurozone member states are supposed to keep their deficits under three percent, but most are far above this as their public spending explodes and tax revenue falls during the crisis.

French public debt will soar to 84 percent of national output in 2010, up from 68 percent at the end of 2008 and well above the theoretical 60 percent limit set when Paris and its partners launched the single currency.

According to the budget, the economy is expected to shrink this year by 2.25 percent before seeing renewed growth of 0.75 percent next year and 2.5 percent in 2011.

The budget bill will go before parliament next month.