World financial crisis

France announces big deficit jump, EU in recession

Article published on the 2009-02-13 Latest update 2009-02-13 14:40 TU

Christine Lagarde
(Photo : Reuters)

France’s public deficit jumped over 60 per cent in the last year amid the global economic crisis and lower than expected government revenues. The announcement, made Friday, came on the backdrop of the European Union officially entering a recession.

The 2008 French public deficit was 56.2 billion euros, announced Budget Minister Eric Woerth. That is 15 billion euros more than expected and 4.7 billion more than had been budgeted for in December.

Since government spending remained in line with inflation, it was lower-than-expected tax revenues at fault for the ballooning deficit.

This announcement was reinforced when Economy Minister Christine Lagarde said that France will fall into recession Friday. 

She declared that the economy is likely to shrink between one and two per cent in 2009. The government had been reluctant to admit that France was going into recession, claiming that its strictly-regulated banking sector was less affected by the global economic crisis than in other countries.

President Nicolas Sarkozy has promised a 26-billion-euro stimulus package.

The EU as a whole has already entered recession, as its gross domestic product (GDP) dropped 1.5 percent in the final quarter of 2008, the second consecutive quarter in the red.

The Eurozone’s economy also contracted by 1.5 per cent last quarter, its largest drop on record, Eurostat, the EU’s data agency, announced Friday.

Europe’s biggest airline, Air France-KLM, made a net loss of 505 million euros in the fourth quarter of 2008.

Its performance “reflected the increasing severity of the economic downturn”, the group said in an announcement on Friday. To combat  the poor results the airline announced that it would cut 1,200 jobs by declaring a hiring freeze and not replacing retirees.

Air France hopes to return to profit in 2009, but early signs are not promising, as January saw the worst-ever drop in cargo traffic: a 25-per-cent fall in one month.