French Finance Minister Pierre Moscovici stuck on Thursday to his insistence that France can meet a goal to cut its deficit to within an EU ceiling of 3 percent of GDP in 2013 without large-scale austerity cuts, despite growing concern over growth.
Moscovici said a 2012 budget adjustment bill to be submitted to parliament in early July after an in-depth audit of public finances would seek to raise state revenues through higher taxes and also seek savings in regular government spending.
The insistence by France’s new Socialist government that it will not stray from deficit targets clashes with a growing skepticism among analysts that set goals can be met as anemic economic growth eats into state revenues.
A presidential source said this week that Paris will not stray from its goals, noting that any slippage could undermine French hopes of getting German support for a pro-growth pact it wants agreed at an end-June European Union leaders summit.
At the same time, President Francois Hollande is also expected to make a push for more flexibility on deficit-cutting goals for countries in recession at the June 28-29 summit, set to focus on deepening financial and fiscal integration to curb the raging euro zone debt crisis.
“France has made a commitment to its partners to reduce the deficit to 4.5 percent in 2012 ... and 3 percent in 2013. We will meet these targets,” Moscovici said on France 2 television.
“We can absolutely meet these targets without austerity measures.”
The audit, due to be made public just before the June 28-29 EU summit, is expected to paint a grim picture of public finances that Hollande could use as justification for a change of tack, either by restating the timing of deficit goals or by scaling back spending plans.
An internal government report leaked in the daily Les Echos this month found the government would need to cut spending by 3.9 billion euros ($4.90 billion) a year to meet budget goals.
Economists close to Hollande say he will push for euro zone deficit targets to always be stated in structural terms, which could mean more flexibility on timing during economic downturns.
Such flexibility could end up benefitting France, whose 2 trillion euro economy is set to contract slightly in the second quarter after flat-lining in the first quarter as consumers and businesses reined in spending and unemployment hit 10 percent.
Labor Minister Michel Sapin said that well-targeted cost savings like belt-tightening in local government administration, could help prevent France falling into the vicious spiral of austerity cuts and slowing growth that is plaguing Greece, Spain and Italy.
“We need to bring spending under control, increase state revenues and start growth policies,” he told LCP television