Optimistic France's EMU hopes rise

The French economy is poised to recover this year, despite a decline in the headline business confidence index reported yesterday. Improved growth prospects should help France satisfy the criteria for joining the European single currency in the nick of time.

The monthly survey from the statistics institute Insee showed that an unexpected drop in confidence this month was concentrated in the car sector, which has been in the doldrums since the ending of a special tax subsidy last September. But manufacturers of other consumer goods and investment goods remained upbeat.

The balance of optimists over pessimists about their industry's business prospects fell by 5 points to 1 per cent, having surged from minus 21 per cent in October to a 19-month high of 6 per cent in February.

"This should not raise concerns of a possible new downturn in activity," said Jean-Francois Mercier, an economist at investment bank Salomon Brothers.

Robert Lind at Hoare Govett agreed. "Prospects for the French economy remain positive for 1997," he said.

Economic recovery is needed if France is to stand a good chance of meeting the requirements to qualify for the single currency set out in the Maastricht Treaty. Many economists are sceptical about the country's ability to get its government budget deficit below the 3 per cent of GDP ceiling if GDP growth is too slow this year, although the EU's official forecast shows it just scraping under the limit.

Italy's Prime Minister Romano Prodi said yesterday that his cabinet had approved a proposal for a mid-year budget that would trim the budget deficit by 15.5bn lire (pounds 6.3bn), which would enable Italy to hit the 3 per cent of GDP target.

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