France outlines 'optimistic' pledge to get economy back on track

France on Wednesday outlined its strategy for bringing its public finances into line with eurozone rules via an anticipated economic upturn branded "optimistic" and spending cuts that face fierce opposition within the ruling Socialist party.

Presenting a plan yet to be approved by the European Commission, Finance Minister Michel Sapin vowed that the eurozone's second biggest economy, currently doing little more than stagnating, would soon pick up sufficient momentum for France to bring its budget deficit down to the EU ceiling of three percent of GDP in 2015.

But the government's growth projections from now until the end of President Francois Hollande's term in 2017 were described as "optimistic" by its own independent spending watchdog. The High Council for Public Finances warned that everything would have to go exactly to plan for Sapin's sums to add up.

Although forecasts for 2014 looked realistic, the scenario envisaged for the following years was "based on a virtuous chain of every favourable hypothesis", the Council's president, Didier Migaud, told a parliamentary committee.

France was placed under surveillance by the European Commission earlier this year, having been twice granted extra time to meet the three-percent deficit target that is the centrepiece of the budget rules for members of the European single currency.

The procedure means the measures outlined on Wednesday have to be presented to Brussels and EU officials will announce next month whether they regard them as a credible programme.

The Eurozone's deficit ceiling is seen as growth-inhibiting by many in the French Socialist party but discreet overtures about the possibility of a third extension of the deadline for meeting it were given short shrift in Brussels.

The official government line is that France has no option but to bring its deficit down to a level at which it can start to make inroads into its huge national debt, which rose from 50 percent of GDP in 2002 to 93.5 percent by the end of last year.

"Meeting the deficit target is not a question of fetishism or submission (to Brussels)," Sapin said.

The government is counting on the economy expanding by one percent this year and an acceleration of growth to 1.7 percent next year and at least 2.25 percent in both 2016 and 2017, by which time it anticipates its measures to bolster growth will have taken effect.

- Cuts to create jobs? -

Under plans outlined last week by new Prime Minister Manuel Valls, the 50 billion euros of cuts envisaged for 2015-2017 will be used to finance a package of payroll and income tax cuts designed to bolster demand, make French companies more competitive and attract inward investment.

The government predicted on Wednesday that this programme, known as the Responsibility Pact, would generate 200,000 new jobs by 2017, helping to bring unemployment down from its current record level.

Valls, the most popular figure in the government, was promoted to prime minister after the Socialists suffered stinging losses in local elections last month which were largely attributed to the country's persistent economic woes.

The new premier's agenda of cuts combined with business-friendly reforms reflect his ability to appeal to voters across the political spectrum.

But he is far from universally popular within the Socialist party and his proposals are currently the subject of fierce lobbying from the left of the party, which has threatened a revolt if the cuts are not watered down before a parliamentary vote on them next week.

The most controversial aspect of Valls's programme is a freeze on a wide range of welfare payments from now until October 2015 but many Socialist deputies are uneasy with the plan to reduce the amount of payroll taxes paid by big companies.

Economists have also expressed scepticism over whether employers will actually hire more people, rather than simply using the tax break to boost profit margins.

At talks earlier this week, lawmakers on the left of the ruling party asked Valls to trim the overall cuts package from 50 billion euros to 35 billion, drop the freezes on welfare payments and wage increases for public sector workers, and put off payroll measure for the biggest companies until 2016.