France will not need to introduce austerity measures in response to increased debt exposure from the euro zone's new rescue plan for Greece, its finance minister said on Saturday.Austerity or not, it is precisely this deficit reduction play that has Krugman screaming "It's 1937". Please see Greece Defaults; Krugman Screams It's 1937; Maastricht Treaty Needs Revisions; "European Monetary Fund" Created; German Taxpayers on the Hook for a recap.
Baroin, who recently succeeded IMF-bound Christine Lagarde, told the newspaper: "France is participating in the form of a guarantee.
"...Since last year, European statisticians have told us that the debt of the European Financial Stability Facility (bailout fund) should be linked to each country according to what it guaranteed.
"Beyond that accounting impact, France doesn't need to borrow more and our deficit isn't impacted. Neither the EFSF nor obviously France will be impoverished by this plan."
Facing an election in 2012, the government aims to cut the public deficit from an estimated 5.7 percent of GDP this year to meet an EU-imposed limit of 3 percent in 2013.
I find it unlikely that France will meet those targets. Moreover, and although Ireland, Greece, Portugal, and Spain are exempt from that 3% by 2013 ruling, it is 100% certain Greece and Ireland will need another bailout by then.
Expect to see this deal run into enormous difficulty by the end of the year, if not the end of next month.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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