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French Deficit Widens

James Boston
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www.finances.com

Frances deficit widened in May according to data just released by the Banque de France. The revised April reading on the Current Account of -€2.3Bn became -€3.1Bn for May. The Goods deficit was the main culprit of the widening, this increased from -€3.2Bn to -€3.5Bn on the month while the Services deficit narrowed a little from -€1.9Bn to -€1.4Bn.

France, which has produced little to no economic growth over the past two years, has joined Italy in calling for the European Union to relax it’s strict fiscal constraints. In a speech yesterday the French finance minister, Arnaud Montebourg put the EU on notice that it intends to look for more time to reduce it’s debt levels. This echoes a call two weeks ago by Italian Prime Minister, Matteo Renzi, for the EU to consider an easing of the bloc’s austerity policies.

Smaller, more indebted, Eurozone economies have long called for an easing of austerity but have had little choice but to go along with the EU in return for bailout funding. France’s support of the anti austerity Italian stance appears to be the beginning of some momentum in this regard from two of Europe’s first tier economies. Should this momentum continue with further calls from other economies then it will represent pressure that the EU will find difficult to ignore.

As it stands France is already on track to miss this year’s EU imposed 3% deficit target, this will result in fines and sanctions being imposed on France. More to the point however, it will set a precedent for other struggling EU nations to replicate, many are on the verge of doing so already as we enter the early stages of national budget season. The EU would prefer not to have a series of nations breaking ranks on this target, it is not inconceivable that they allow a one off relaxation of the rules.

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