IMF, EU urges France to pull back on deficit cuts

The International Monetary Fund and the European Commission have called on France and other eurozone countries not to fixate on deficit reduction targets which risk worsening the region’s debt crisis.

The head of the IMF in France Edward Gardner has urged France to consider its 2013 budget targets in a broader European context.

"The credibility of the medium term orientation policy" is more important than a specific deficit target, Gardner said.

Gardner advised that loosening the criteria would "be more effective, more credible in a coordinated fashion" across the 17 nation eurozone.

The IMF and the EU Commission expect the French public deficit to amount to 3.5 per cent of GDP in 2013.

President François Hollande’s Socialist Party has set a goal of three per cent, the eurozone limit, down from 4.5 per cent in 2012.

The target is based on a 2013 growth estimate of 0.8 per cent that economists consider very optimistic.

Friday's third-quarter figures put growth over that period down from 0.2 to 0.1 per cent.

"The IMF is beginning to understand that the French situation has become dangerous," economist Marc Touati at the ACDefi consulting group said, pointing out that unemployment is climbing and the economy is still struggling.

European Economic Affairs Commissioner Ollie Rehn believes France needed more reforms rather than increased austerity.

"Once you have a credible medium-term budget strategy, backed up by reforms, you can have a slower adjustment," he told French daily Le Monde.

But French officials are determined to stick to the target.

"In the past 30 years, France has not been able to pass a balanced budget. State debt rose to an unacceptable 1.7 trillion euros (ê2.2 trillion) in 2011. It is our duty to reverse this," French Finance Minister Pierre Moscovici wrote in the German business daily Handelsblatt.

French banks have warned France much be careful how it communicates to markets in order to maintain credibility.