French Deficit Forecasts Pose Challenge for Emmanuel Macron

By Matthew Dalton Features Dow Jones Newswires

France's budget auditor Thursday said the government deficit this year will significantly exceed targets negotiated with the European Union, presenting President Emmanuel Macron with a major economic test just weeks into his term in office.

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The French Court of Auditors said the budget deficit is on track to hit 3.2% of gross domestic product in 2017, compared with a target of 2.8% of GDP set by the government of Mr. Macron's predecessor, François Hollande. The 2.8% target was part of an agreement reached between France and the European Commission, the EU's executive arm, to bring France's long-swollen deficit in line with EU rules, which call for government budget gaps under 3% of GDP.

Now, Mr. Macron is likely to face pressure from commission officials in Brussels and budget hawks in the German government to pass a new package of spending cuts and tax hikes. Those austerity measures threaten to slow the French economy just as growth is starting to pick up.

The court's report was sharply critical of last year's budget and the government's bookkeeping. Budget provisions for the next three years "contain numerous drafting biases that affect its accuracy and appear unlikely to be respected," the court said.

Responding to the court, Mr. Macron's government denounced Mr. Hollande's budget.

"It's unacceptable," said Prime Minister Edouard Philippe. "It's as if the government had made a budget and forgotten to include the justice ministry."

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Drafting changes to meet the EU targets could test Mr. Macron's ability to forge consensus within his ideologically diverse government. Mr. Philippe and the finance minister, Bruno Le Maire, come from France's conservative Les Republicains party, who have favored spending cuts to address France's budget woes.

Mr. Macron himself, however, is a former economy minister under the Socialist Mr. Hollande who has at times criticized austerity mandates pushed by officials in Brussels.

France's budget deficit has exceeded 3% since it ballooned in the aftermath of the 2008 financial crisis. That has prompted periodic clashes with the commission, which is charged with enforcing the EU's budget rules and has long urged the French government to cut spending.

France has received several extensions on deadlines to bring its deficit under 3%. In 2015, the commission agreed to allow Paris until 2017 to hit the 3% threshold, which is enshrined in the EU treaty.

Last year, France and Spain were the only members of the 28-nation EU whose deficits exceeded 3%.

Beyond this year, Paris will face mounting pressure to meet its deficit targets. France's budget plan submitted to the commission proposes to cut the government's deficit to 2.3% of GDP in 2018, 1.6% in 2019 and 1.3% in 2020.

Hitting those targets will require deficit cuts "without precedent" for France, the court said.

Write to Matthew Dalton at Matthew.Dalton@wsj.com

(END) Dow Jones Newswires

June 29, 2017 15:21 ET (19:21 GMT)