Monday, 24 September 2007

France is in a position of bankruptcy

European Central Bank (ECB) chief Jean-Claude Trichet has said that France’s public finances are in “very great difficulty.”

“In 2007, according to statistics from the European commission, France will be the country spending the most in public expenditure in relation to gross domestic product, not only within the eurozone but among the 27 members of the European Union”, Mr Trichet told Europe 1 radio on Sunday (23 September).

On top of that, “the development of France’s public finances has on average been significantly worse than that of other European countries”, he added.

His comments came shortly after a statement by France’s prime minister, Francois Fillon, who said on Friday (21 September) that his country was in a state of bankruptcy.

“I am at the head of a state that is in a position of bankruptcy (‘¦), that for 15 years has been in chronic deficit (‘¦), that has not once passed a balanced budget in 25 years”.

Paris is to present this week its budget for 2008 with a deficit of €41.5 billion, according to the UK’s Daily Telegraph.

If it keeps rising, it may breach one of the eurozone’s rules stating that a country’s annual budget deficit should not surpass three percent of gross domestic product (GDP).

Mr Trichet’s comments also come as a reply to French president Nicolas Sarkozy, who has repeatedly criticised the ECB lately on a number of points, notably for not cutting interest rates.

His latest attack came on Thursday (20 September). Speaking on national television, Mr Sarkozy compared the ECB to the American Federal Reserve, saying: “”When the Federal Reserve cuts rates, things get better. When we don’t cut ours, we sink”.

He also criticised the European Bank for not stopping the growth of the euro, which hit a record high of €1.41 to the US dollar last week, making exports from the eurozone more expensive on the way.

The opinions of Mr Sarkozy, whose tendency to compare France and more generally the EU to the US and has prompted French media to dub him “Sarko the American”, has raised hackles among other member states.

Politicians to keep out of ECB
Germany, in particular, has emphasised the need for politicians to keep out of ECB affairs, and called for the preservation of its independence.

Chancellor Angela Merkel said that she would “prevent any state attempt to influence monetary policy” during a dinner marking the 50th anniversary of Germany’s Bundesbank, the FT reports.

Mr Trichet, who has also repeatedly stressed the need for the ECB to remain independent from any political pressure and has been riled by Mr Sarkozy’ comments, pointedly took Berlin as an example of a government which has managed to lower its public expenditure.

Currently, Germany’s public spending is nine percentage points of GDP lower than that of France, which has to “adapt faster”, if it wants to benefit best from a global economy, Mr Trichet said.

The next meeting of the European Central Bank will be on 4 October. During its last meeting on 6 September it decided to keep its interest rates unchanged.

By Elitsa Vucheva
This article first appeared on EU Observer