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 The announcement from Paris came hours after news that Italy too
planned to ease the pace of painful deficit-reduction steps to try
to counter another year of recession.
"We have taken the decision to adapt the pace of deficit reduction
to the economic situation of the country," French Finance Minister
Michel Sapin told a news conference.
"Our economic policy is not changing, but the deficit will be
reduced more slowly than planned due to economic circumstances -
very weak growth and very weak inflation."
Under the French budget plan, the public deficit is set to fall from
4.4 percent of output this year to 4.3 percent next year, 3.8
percent in 2016 and 2.8 percent in 2017 - below the EU-mandated
threshold of 3 percent.
Previously, France had promised EU partners it would bring its
deficit below 3 percent by next year, a deadline that had already
been extended from 2013. France's spending watchdog doubted even the
new targets could be reached.
"No further effort will be demanded of the French, because the
government - while taking the fiscal responsibility needed to put
the country on the right track - rejects austerity," the budget
statement said.
President Francois Hollande is resisting pressure from some in his
Socialist Party to ease off even more emphatically on cutbacks but
also has to contend with an approval rating at a record low 13
percent and news a week ago that conservative rival Nicolas Sarkozy,
the man he beat in the 2012 election, is making a return to
frontline politics.
Sapin, who this month conceded the 2015 deficit target was
untenable, reaffirmed forecasts that the euro zone's second largest
economy would grow at a modest 1.0 percent next year, rising to 1.9
percent in 2017.
Despite the governemnt's decision to lower its sights, the country's
independent public finances watchdog, the High Council of Public
Finances, said the revised projections still looked optimistic as
far as 2016 and 2017 were concerned.
PUBLIC SPENDING
The government described its effort to shave 50 billion euros off
projected public spending volumes between now and 2017 as
"unprecedented" - while acknowledging the total volume of public
spending would still rise by 0.2 percent over the period.
That would imply public debt ticking up to a peak of 98.0 percent of
output in 2016 before a slight fall in 2017. French public spending
and the total tax burden - among the highest in the world - would
fall only modestly as a result.
The so-called structural deficit, a figure closely watched by EU
budget watchdogs as it strips out the effects of the economic cycle,
will fall less than hoped by France's partners from 2.2 percent of
output in 2015 to 1.4 percent in 2017.
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Incoming European Commission President Jean-Claude Juncker is now
under pressure to react firmly enough to avoid a further loss of
confidence in the bloc's already battered budget rulebook. His
options include sanctions including hefty fines.
The European Commission, where Sapin's predecessor Pierre Moscovici
has just been named Commissioner tasked with keeping tabs on respect
for EU budget rules, declined immediate comment in the wake of the
budget bill presentation in Paris.
Advocates of budgetary rigour led by Germany believe the time has come
for France to taste some of the fiscal austerity and painful
structural reform already undertaken by its southern neighbours in
the wake of the 2009-2012 debt crisis.
But Paris can count on allies in Rome, Athens, Dublin, Madrid and
elsewhere to support its argument that further austerity would be
counterproductive by snuffing out the fragile start of recovery
across the euro zone.
Italian Finance Minister Pier Carlo Padoan said on Tuesday he
expected a third straight year of recession this year. While Rome
would honour a pledge to cut its deficit to the 3 percent EU target
in 2014, the aim of bringing the budget into balance in structural
terms - adjusted for the effects of the business cycle - would be
delayed by a year until 2017, he said.
Hollande has charged Sapin and Prime Minister Manuel Valls with
imposing spending caps on individual ministries and Sapin said he
would recoup a further 4 billion euros in French public asset sales
to pay off debt. In a bid to return some cash to the pockets of
low-earners, the budget will also cancel the existing lowest income
tax band - a move to be funded with tax proceeds elsewhere.
Despite its fiscal woes, France continues to borrow at historically
low rates - the yield on its benchmark 10-year bond was unchanged
around 1.289 percent in early Wednesday trade.
In an interview with Les Echos newspaper, former conservative Prime
Minister Francois Fillon - a possible presidential candidate in 2017
- warned nonetheless that France was "on the verge of serious
financial accident".
(The story corrects in para 21 to say France borrows at historically
low rates)
(Editing by Mark John, Brian Love and Alison Williams)
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