President François Hollande laid the groundwork on Tuesday for lowering France's growth forecasts, as the state auditor warned the country will likely miss this year's deficit targets, leaving the Socialist with a policy dilemma as he battles to rein in public finances.
Mr Hollande's comments follow the publication of a report (French) by France's state auditor, the Cour des Comptes, that said the deficit-reduction targets were at significant risk because of the slowdown. The auditor said the government has depended too much on raising taxes in trying to balance its budget and needed to focus more on spending cuts. Taxes currently account for over 75 per cent of the effort to bring the deficit down this year, the auditor said.
The French government is unwilling to endanger such credibility after countries like Spain repeatedly failed to meet their fiscal targets, troubling investors. But Mr Hollande is loath to make further cuts or tax increases after campaigning for election a year ago on a promise to infuse the eurozone with growth policies and tone down the focus on austerity. "We should do everything so that we have a serious budget in 2013 to which we are committed, but we must also have a will to preserve economic activity", Mr Hollande said.
In a letter responding to the auditor's report, Finance Minister Pierre Moscovici said the government is sticking to its 3 per cent deficit target, but acknowledged there are numerous uncertainties surrounding the growth outlook and said the 2013 forecast will be "re-evaluated" during the preparation for the presentation of a stability programme to French parliament in April.
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