France’s public debt is to rise to close to 90 percent of Gross Domestic Product (GDP) this year instead of earlier forecasts of 88.3 percent because of net transfers from Paris to the new European Stability Mechanism (ESM) fund, which is helping bail out troubled EU members, government sources indicated Wednesday.
Under European Union regulations, which were adopted with the Masstricht Treaty in 1992 for budgetary, deficit and inflation management criteria, France is not allowed to have debt above 60 percent of GDP.
But Brussels has turned a blind eye to these “tacit” violations because of the 2008-2009 financial crisis and the growing debt problems and recession in certain EU nations.
The French Cabinet met Wednesday to discuss contribution levels to the ESM and to examine the impact on the French economy. France is to contribute USD 8.5 billion (Euros 6.5 billion) to the new ESM.
The ESM will be capitalized at the level of close to USD 920 billion and will have a nominal USD 655 billion available for loans, although only about USD 100 billion is immediately available and the rest will have to be mobilized on need.
The rising French debt will be particularly important as France is forecast to officially hit recession at the end of the first quarter, although economic observers point out that the country is already in a period of negative growth since the last quarter of 2011.
The Cabinet meeting, chaired by French President Nicolas Sarkozy, noted that despite the debt increase, it was maintaining its objectives in other areas like deficit reduction.
France’s public debt now stands at record levels of 2.2 trillion dollars and France has lost its “Triple A” financial status with major rating agency Standard and Poor’s although other major agencies have left the rating unchanged.
French growth forecasts for this year has been revised downward to 0.5 percent of GDP, a drawdown of more than half from earlier projections and unemployment here is has risen sharply in past months and is around three million, or close to 10 percent.