Business

Austerity haunts Hollande

Angelique Chrisafis

Franois Hollande, Europe's chief critic of one-size-fits-all austerity measures, is facing the headache of inescapable belt-tightening at home.

France must plug a gap of between €6-billion and €10-billion in this year’s budget to meet its promises to Brussels to reduce the deficit to 4.4% of economic output.

This after a national audit confirmed that France had a gaping hole in its budget and would struggle to meet its deficit-reduction targets.

France must plug a gap of between €6-billion and €10-billion in this year’s budget to meet its promises to Brussels to reduce the deficit to 4.4% of economic output, state auditors warned.

Next year will be even harder, with a €33-billion shortfall complicating Paris’s pledge to reduce the budget deficit to 3% of gross domestic product in 2013.

The dire state of public finances in the eurozone’s second economy comes as no surprise. France has record unemployment at about 10%, public debt has spiralled, growth is flat, competitiveness is low, the credit rating has already been downgraded and French industry has declined faster than its neighbours.

The new socialist president and his government must now begin a delicate verbal juggling act to define belt-tightening measures in a country where the word “austerity” is taboo.

Hollande reiterated recently that he was against austerity. But at the same time he has maintained that his target of balancing the books in France by 2017 is sacrosanct.

Fair effort
France has not balanced a budget since 1974 and must steadily reduce its deficit to keep Brussels and the markets at bay.

Hollande’s line is that restoring French public finances is not about crude, axe-swinging cuts to the public sector or welfare system, but a “fair effort”.

Socialists have argued in recent days that the left will deliver a “just” budgetary discipline, which they say is not ideological or punitive like that of the right and which is also a short-term measure. Above all, they want to preserve France’s social model of welfare rights.

Details of this year’s revised budget will emerge this week, featuring Hollande’s tax increases, mainly aimed at the wealthiest and most privileged. But a poll last Friday showed that 54% of French people thought the new taxes would fall mostly on the lower middle class.

The state auditor said tax increases must be balanced with a closer look at public spending. It recommended the government consider how to trim the fat off the public sector, which at 56% of gross domestic product is the eurozone’s biggest. Proposals included cutting jobs and ending tax breaks.

With a plan to trim running costs and the nonreplacement of a percentage of public servants who retire, some government departments could end up facing harsher staff cuts than under Nicolas Sarkozy. – © Guardian News & Media 2012

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