France must squeeze spending or risk market backlash, says auditor

France Faces Pressure to Control Spending or Risk Market Reaction

PARIS (Reuters) -France needs to get its public finances back on track this year or risk pressure from unforgiving financial markets to do so in the future, the national public audit office said on Wednesday.

Centrist Prime Minister Francois Bayrou is struggling to get public finances back under control after spending spiralled higher last year and tax income fell short of expectations.

France saw its budget deficit expand further than any other euro zone country last year as a snap legislative election delivered a hung parliament, making bold decisions to correct the deterioration all but impossible.

"We have a choice between making a voluntary effort now or suffering austerity tomorrow," the Cour des Comptes audit office head Pierre Moscovici said, adding markets were watching for missteps.

As a first step to getting the budget deficit back to an EU limit of 3% of output by 2029, the government aims to reduce the deficit to 5.4% of GDP from 5.8% last year, a target Moscovici described as "reachable but fragile".

Bayrou, a long-time debt hawk, has said he would outline plans in mid-July to cut spending by 40 billion euros next year to reduce the deficit to 4.6%.

In France's deeply-divided parliament, opposition parties on the far-right and left are watching closely and could easily topple Bayrou's government as they did with his conservative predecessor, Michel Barnier.

With interest payments on France's debt set to become the single biggest expense in the budget by the end of the decade, Moscovici warned that simply meeting the EU deficit target would not be enough to ward off a debt crisis.

"To truly guarantee the sovereignty of the French debt, it is essential to return to a primary surplus, which is a prerequisite," Moscovici said.    

(Reporting by Leigh ThomasEditing by Alexandra Hudson)