France s public debt has topped the symbolic level of 2.0 trillion euros for the first time, putting Paris on a fresh collision course with the European Union as the government prepares to unveil its annual budget.
The total national debt amounted to 2.023 trillion euros ($2.57 trillion) in the second quarter of the year, which represents 95.1 percent of gross domestic product (GDP), national statistics agency INSEE said on Tuesday.
European Union rules say that debt must not exceed 60 percent of GDP, or be falling significantly towards this ratio.
In the first quarter of the year, debt stood at 1.995 trillion euros, or 94.0 percent of GDP, INSEE said.
President Francois Hollande stressed that he had inherited a difficult debt situation when he entered the Elysee Palace.
“In the five years before I came to power, public debt rose by 600 billion euros. Now we re at 2,000 billion. So our role has to be to get the deficit in hand so we can avoid pushing up the absolute level of debt,” said Hollande.
France is already at loggerheads with the EU over its budget deficit, which is supposed to be kept under three percent of GDP.
Paris promised to bring the deficit in-line by next year but, in a stunning about turn, announced earlier this month that it was pushing back this target until 2017.
The deficit this year is forecast to be 4.4 percent of GDP, dropping only fractionally to 4.3 percent next year.
France is struggling with an economy at a standstill and sky-high unemployment.
There has been zero growth for the first two quarters of the year and Finance Minister Michel Sapin is banking on sluggish output of 0.4 percent for the whole of the year.
– Very low rates –
France will on Wednesday publish its annual budget, which is expected to confirm the gloomy outlook and reaffirm it will miss its deficit targets.
The economy ministry stressed that the government s plan to clean up the public finances and make sweeping cuts in public spending “should allow us to stop the growth in debt”.
“France also enjoys the confidence of investors which allows the state, but also companies and individuals, to borrow at very low rates,” the ministry said.
To combat the economic crisis, Hollande s deeply unpopular government has put in place a “Responsibility Pact” which offers companies tax breaks of 40 billion euros in return for creating 500,000 jobs over three years.
Hollande steeled the French people for the budget by saying: “There is no painless savings plan, otherwise it would already have been done.
“Savings are inevitably painful. No sector can accept seeing its habits, sometimes its finances, challenged.”
Christopher Dembik, an analyst at Saxo Bank, said: “The problem with France is there is no clear trajectory for reforms and the reforms that do exist are too unambitious and very, very slow to be implemented.”
Even Economy Minister Emmanuel Macron has admitted that the French economy is “sick” due to its perennially high unemployment.
“There has been a fever for several years in this country which is called mass unemployment … there is no choice but to reform the economy,” stressed Macron, a 36-year-old former Rothschild banker, a recent surprise choice for economy minister.
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