France's Budget Deficit Falls to 2.6 Percent in 2017

France saw its budget deficit for 2017 shrunk lower than the European Union’s (EU) target for the first time in a decade on Monday, suggesting that eurozone’s second-largest economy is improving under President Emmanuel Macron.

The Institut National de la Statistique et des Études Économiques (INSEE) reported that France’s public budget deficit lessened to a better-than-expected 2.6 percent of gross domestic product (GDP) in the previous year, falling below the EU’s 3 percent limit and beating government’s forecast of 2.9 percent.

This was the first to come under the EU target since 2007, when the global financial crisis occurred.

Even so, the bureau said the drop in deficit does not affect France’s public debt, since the government is still borrowing more than it repays.

Public debt was at €2.2 trillion ($2.73 trillion), or 9.7 percent of GDP at the end of the 2017.   

The reduction was mainly a result of a more optimistic economy, which helped bolster national and local tax revenues, acquire more contributions on wages, and boost GDP growth in 2017.

France’s economy in the prior year was up by 2 percent, the highest in six years, with a GDP growth of 0.7 percent in the fourth quarter, surpassing expectations of 0.6 percent.

That marked a sharp climb after three years of sluggish growth, when GDP only expanded by 1 percent in 2014 and 2015, and 1.1 percent in 2016.

Overall, the country’s economic growth was still slightly far from the 2.5 percent increase that the Eurozone reached in 2017.           

Restoring France’s Credibility

French Finance Minister Bruno Le Maire said the latest deficit figure was good news, as it helps them get back their credibility in Europe.   

Macron, who made respecting EU budget policies after years of setbacks the foundation of his goal to restore French fiscal credibility among EU peers.    

France has been under strong pressure to decrease its budget deficit and debt, which are still among the highest in the eurozone.

Shortly after Macron’s appointment in May, the President of France has imposed rigorous reduction spending measures, including cuts to popular housing allowance to avoid exceeding the 3 percent limit in budget deficit.       

France and Spain are the only eurozone countries so far to be still under the European Commission's excessive-deficit procedure.

The result may also help with Macron’s pursuit of urging Germany, EU’s paymaster, to reform the eurozone and aid in resolving the mistrust between northern European countries, and what they view as spendthrift southern members.

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