French deficit plan poses legal problem, but nominal targets key - Moscovici

By Jan Strupczewski WASHINGTON (Reuters) - France's challenge of structural deficit targets set by European Union finance ministers is a legal problem, but economic growth and nominal deficit goals are more important in the end, EU Economics Commissioner Pierre Moscovici said. His remarks in an interview with Reuters signal a willingness to accommodate France's new deficit reduction plan, even if it does not fully comply with the recommendations of EU finance ministers, as long as the headline deficit number is in line with EU laws. EU countries have to keep nominal budget deficits below 3 percent of GDP. If the deficit is bigger, EU finance ministers set a path of bringing it down again for the offending country. Ignoring the ministers' recommendation can end up in fines. While the key ceiling of 3 percent of GDP is set in nominal terms, EU rules also say that each year the deficit has to fall by at least 0.5 percent of GDP in structural terms, which strip out the effects of the business cycle and one offs, until the budget is brought into balance. During the sovereign debt crisis, EU finance ministers focused on the structural adjustment and the latest set of goals for France spells out both nominal targets and the structural deficit change that they would entail. But France, which has had an excessive deficit since 2008, said on Wednesday it would not follow the EU's recommendation to cut its structural budget deficit by 0.8 percent of GDP in 2016 and 0.9 percent in 2017, even though it still intended to bring the nominal deficit below 3 percent in 2017 as asked. Paris says it can cut the structural deficit by no more than the minimum 0.5 percent a year, as deeper structural cuts would hurt economic growth. "There is a legal problem, certainly, but there is a also an economic problem," Moscovici told Reuters in an interview. "Europe is about creating more jobs and growth and nothing must be done that would hinder the recovery." "The nominal target is more important in the end. It does not mean the structural effort can be neglected. It means that structural effort is the most important one if the nominal targets cannot be met," he said. Moscovici also stressed that the EU ministers' recommendations to France were made when last year's French nominal budget deficit was expected to be 4.3 percent. However, the deficit appears to have come in at 4.0 percent. "We must be rigorous, but not rigid. We must acknowledge that the starting point, the execution in 2014, is not what was forecast by the Commission, it is better," he said. The better French 2014 deficit number has yet to be officially confirmed by the EU's statistics office, which is scheduled to make its determination on Tuesday. The Commission will then issue new economic forecasts for economic growth and deficits for EU countries on May 5, followed by recommendations on economic policy for each country in the middle of May. "We will have to examine carefully the reform plans of France," Moscovici said. "Growth is back in the EU and in France too, and growth and jobs are a priority of this Commission and with this focus we will look at the results," he said. "After that we will look at the coherence of the plans by France with a view that we also have to take into account the better than expected deficit results in 2014," he said. (Reporting by Jan Strupczewski; Editing by Tim Ahmann)