French budget bets on growth amid record deficit

France took a bet yesterday that its tentative economic recovery will eventually gain momentum, as the government revealed an annual budget based on running record deficits until at least 2011.

According to figures released with the budget plan, France’s public deficit will grow to a record 8.2 per cent of GDP this year and 8.5 in 2010, with growth expected to rise to only an anaemic 0.75 per cent next year.

Despite the massive budget shortfalls, stimulus spending will continue as France battles to shake off the effects of the global crisis and businesses will be given more than €13 billion in tax cuts.

Deficit and debt levels will therefore not fall before 2011, and there is no prospect of returning them to the levels mandated by the eurozone stability pact until beyond 2012, the government said.

Under Maastrict treaty rules, eurozone member states are supposed to keep their deficits under three per cent, but most are far above this as their public spending explodes and tax revenue falls during the crisis.

French public debt will soar to 84 per cent of national output in 2010, up from 68 per cent at the end of 2008 and well above the theoretical 60 per cent limit set when Paris and its partners launched the single currency.

High deficits have been an intractable problem for years and were greatly aggravated by the recession.

According to the budget, the economy is expected to shrink this year by 2.25 per cent before seeing renewed growth of 0.75 per cent next year and 2.5 per cent in 2011.