IMF Warns France Must Stick To Budget Cuts

May 15, 2014 Share Print 0

The French government risks failing to deliver on €50bn (£40.8bn) of spending cuts, threatening plans to get the deficit under control, the International Monetary Fund has warned.

The IMF, based in Washington, said François Hollande’s government was faced with a large challenge to bring the deficit down but must not renege on the spending cuts which are planned for the next three years.

The IMF said the spending cuts would be “remarkable by historical standards”, but were necessary to offset tax cuts and bring the public finances under control.

It said in an update on France: “Achieving the deficit objectives while delivering on the tax cut commitments leaves no room to deviate from the announced expenditure reductions.

“The major risks are that the initial plans may be diluted in sequential annual budgets and that cuts in transfers to local governments may be compensated by unsustainable cuts in investment, higher taxes or higher debt. This would undermine the government’s fiscal rebalancing strategy.”

The spending cuts are considered crucial if France is to bring its deficit in line with the EU-agreed target of 3% of GDP next year.

Hollande has already pledged to cut payroll tax on companies and has offered tax relief for low-income households.

via The Guardian

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Alfonso Esparza

Senior Currency Analyst at Market Pulse

Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.