France open to letting deficit slip if trade war flares

PARIS (Reuters) -Finance Minister Eric Lombard opened the door on Friday to letting France's budget deficit reduction target slip this year, ruling out extra spending cuts and tax increases to offset a potential shortfall in growth because of a trade war.

Lombard told BFM TV it would be necessary to wait to see how negotiations with the United States on recently announced tariffs go in coming weeks to have a better idea of its impact on the French economy.

U.S. President Donald Trump on Wednesday announced 20% tariffs on imports from the European Union, with higher levels on certain French territories.

If such tariffs were maintained, "revenue would decrease, the GDP would decrease, which would - without getting too technical - degrade the level of the deficit, and I think in that case, to protect the French people, I think we must accept that," Lombard said.

"Even if the situation gets worse, I don't want to take another swing of the axe (to spending). That would be negative for the economy," he said.

The government has based its 2025 budget on expectations that the euro zone's second-biggest economy will grow 0.9% this year, but Lombard and other ministers have hinted that could be lowered later this month when the forecasts are updated.

Without extra spending cuts this year, a slower pace of growth means the government would have little chance of meeting its current budget deficit target.

France has been aiming to trim its deficit to 5.4% of economic output this year from 5.8% last year as a step toward bringing its shortfall in line with an EU ceiling of 3% by 2029.

But Paris still has one of the biggest fiscal gaps in the EU and, unlike other big European countries, it will not be able to bring its debt burden to pre-pandemic levels by the end of the decade.

(Reporting by Makini Brice and Leigh Thomas; Editing by Toby Chopra and Timothy Heritage)