EU target of 3% of GDP less pressing for François Hollande than cutting excess from public finances, says IMF mission chief

This article is more than 7 years old

This article is more than 7 years old

Fresh evidence that France, which is hanging on to the last of its AAA credit ratings, could be given some leeway on deficit targets emerged on Wednesday.

The International Monetary Fund said the country should be more concerned about the credibility of its efforts to cut back on flab in public finances than whether it met the EU's 3% of gross domestic product target for the budget deficit immediately.

The comments by the IMF's mission chief, Edward Gardner, came after the Washington-based fund forecast this month that France would miss its 2013 target for a deficit of 3% of gross domestic product, estimating that it was on course for 3.5% as a result of weaker than expected growth.

Gardner also warned against more tax rises as these could further hold back economic growth. The top rate is being raised to 75%, prompting the actor Gérard Depardieu to announce his removal to Belgium.

Fitch is the only large ratings agency which still considers France to have a top-notch rating. Moody's and Standard & Poor's stripped the country of its AAA status during the year.

Gardner said that to meet the 3% target the Socialist government would have to carry out even more belt tightening than already planned. This would affect growth which was already likely to be subdued.

Gardner said: "Our recommendation is that France discuss the fact in a broader European context [about what would be] the appropriate stance for 2013.

"Whether it's 3% or 3.5% matters less than whether the government can give credible assurances about the direction of policy.

"Our preferred policy is not to take any additional measures at this stage. The path to a balanced budget over the medium term is credible."

Eager to bolster his fiscal credibility, France's president, François Hollande, has already pledged a belt-tightening effort unprecedented in modern France in order to reach the deficit target.

However, he is also returning the state retirement age to 60; his predecessor, Nicolas Sarkozy, had raised it to 62.

At the same time, the government is raising taxes for the wealthiest firms and large companies.

The latest signs that France could be given some leeway came as the yen fell to its lowest level against the dollar for two years as the government of recession-hit Japan was formally sworn in.

Shinzo Abe, the country's seventh prime minister in six years, has promised to launch a bold series of economic measures to pull Japan out of deflation and its fifth recession in 15 years.

In November, the French government reacted angrily when the front cover of the Economist magazine described France as the "time bomb at the heart of Europe" because of its high public spending and unemployment, and called on Hollande to do more to reform the economy.

There are signs though that Brussels is preparing to show some patience with France – and others.

The Spanish newspaper El País reported on Saturday that the European commission would propose that Spain, France and several other eurozone countries be given more time to cut their public deficits below the target limit of 3% of GDP.