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ECONOMY

France will stick to EU debt target, minister says

The new French finance minister vowed this week that his country would stick to the tight deficit reduction targets set by Brussels and rubbished speculation that Paris were hoping to persuade the EU to give them more time.

France will stick to EU debt target, minister says
France will stick to EU deficit targets the country's finance minister promised this week. Photo: Joel Saget/AFP

France will stick to the country's EU-set budget deficit reduction target, the new finance minister insisted on Tuesday, dismissing earlier indications that Paris was angling for a delay.

"I have always said that I have not asked for a delay," Michel Sapin told AFP in a telephone interview, as the government spokesman said that deficit control was a condition for growth.

Sapin's remarks stand in contrast to signals from President Francois Hollande that Paris would seek leeway over a deadline for cutting its excessive public deficit as it seeks to bring pro-business reforms to boost growth.

The French daily Le Figaro reported on Tuesday that two of France's senior politicians, Philippe Leglise-Cost and Emmanuel Macron, received a frosty reception from their eurozone partners in Brussels last week during a trip to ask for more leeway.

Sapin told AFP that the pace of France's deficit reduction could be "slightly changed" by external influences, such as the impact of the strength of the euro, but that this did not jeopardise the government's overall commitment to its targets.

The European Union in June agreed to give France an extra two years, until 2015, to bring its deficit under the EU-agreed ceiling of 3.0 percent of economic output.

But strong doubts remain over whether the French government will be able to make good on its promise, as it struggles to balance its left-wing agenda and meet its commitments to the European Union.

Change of emphasis on deficit control 

Official figures released last month put the budget overshoot at 4.3 percent of output last year — above the target of 4.1 percent.

The European Commission has repeatedly criticised France, with the eurozone's second-biggest economy, for its excessive deficit, warning that it risks destabilising the bloc's nascent recovery from the debt crisis.

French Prime Minister Manuel Valls, who was appointed this month after an election debacle for the ruling Socialist Party, vowed last week to slash public spending and drive ahead with structural reforms.

Addressing parliament in Paris for the first time, he pledged to keep pushing for the "recovery" of the country's public finances, confirming €50 billion ($69 billion) in budget cuts by 2017.

The 18 countries in the single currency are required to stick to strict debt and deficit ceilings and to submit draft budgets and data to the Commission, which polices the guidelines and can sanction any nation in breach of them.

Meanwhile the government's spokesman Stephane Le Foll, in a change of emphasis from Hollande's recent stress on going for growth, said on RTL radio that France could achieve the target for reducing the deficit to 3.0 percent of annual output.

But, the balance between cutting the deficits and achieving growth was "difficult".

Noting that France had managed to cut the deficit from 5.7 percent in 2011 to 4.3 percent, he said: "We cannot have growth tomorrow if we open the taps (for public spending)."

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ECONOMY

How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.” 

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