PARIS: EU Economy Commissioner Olli Rehn said yesterday that France needed more reform rather than more austerity, suggesting a slower fiscal adjustment a day after the government's ability to meet its deficit target was called into question.
"Additional savings measures are not essential," Rehn told the French daily Le Monde, saying a public deficit of 3.0 percent of gross domestic product (GDP) remained the target but adding that once a credible medium-term budget plan backed up by reforms was in place "you can have a slower adjustment".
Rehn's interview came after France's national statistics agency INSEE called into question the government's 2013 growth forecast of 0.8 percent.
With growth likely to be much slower, the government would need to make more spending cuts and tax hikes than the 37 billion billion euros ($ 49 billion) it already plans to meet a commitment to cut its public deficit next year to 3.0 percent of GDP from 4.5 percent.
The EU has recently begun moving away from blind insistence on reaching nominal deficit reduction targets as sharp cuts and tax hikes have only amplified recessionary effects. The euro zone overall is already in recession and the European Central Bank expects output will continue to shrink next year.
Rehn said that the EU's fiscal pact allows a differentiated approaches based on the situation in each country and that he has asked euro zone finance ministers to review next month fiscal policy in light of the slowdown in growth.
Rehn said the public deficit target 3.0 percent of GDP remains a reference "but what needs to be taken into account is above all the structural budget adjustment effort which France is making with remarkable intensity."
"Once you have a credible medium-term budget strategy, backed up by reforms, you can have a slower adjustment," he added.
Rehn indicated that France needs to go further on the reform front, including greater liberalization of the labor market and further changes to the pension system.
The EU commissioner said he believed that the euro zone has passed the worst of the crisis but that the situation remains worrying.
He urged EU leaders move further on banking union after they agreed to unify supervision of lenders by putting into place a system to shut down troubled banks.
