France to stick to deficit plan

Posted on August 19, 2012

France is to stick doggedly to plans to slash its deficit to 3 per cent of gross domestic product next year, its finance minister has insisted, despite increasing anxiety among the ruling Socialists about the more than €30bn of savings needed to hit the target.

Pierre Moscovici said the deficit target was not being imposed out of “love of a number” but because “debt reduction is imperative to conserving our sovereignty and staying master of our own destiny”.

    He highlighted the fact that French borrowing costs remained “extremely low” because of the decision by François Hollande, the Socialist president, to stick to debt reduction targets set by Nicolas Sarkozy, his right of centre predecessor.

    “Any sign of wavering will be sanctioned, which would increase the cost of debt,” Mr Moscovici said in an interview with the Journal du Dimanche newspaper to mark the return of ministers from their summer break.

    Mr Hollande celebrated his first 100 days of power last week, but he has been hit by a wave of criticism from the left, who accuse him of not making a clear break with Mr Sarkozy, such as a decision to restart clearances of Roma camps.

    The deficit reduction plan is particularly sensitive for a president who came to power promising to spearhead a campaign against the austerity measures being imposed across Europe.

    France’s national auditor, the Cour des Comptes, told Mr Hollande in July that he would need to find savings of about €33bn through higher taxes or spending cuts if he wanted to hit the 3 per cent target.

    However, official figures last week showing that the economy probably failed to grow for three quarters in a row have sparked fears that even that may not be enough.

    The Cour des Comptes’s €33bn is based on a forecast of French GDP growth of 1 per cent in 2013, but most economists, including the IMF, think that is too optimistic.

    Mr Moscovici, who has so far stuck to a growth forecast of 1.2 per cent for next year, insisted that “weak growth is not an inevitability”, pointing to forthcoming structural reforms in France and European funds being set aside for growth projects.

    The government was also taking action to boost the “purchasing power” of French consumers, he added, through measures such as raising the minimum wage and an anticipated freezing of petrol prices.

    Nevertheless, ministers can expect a stormy return from their holidays as they attempt to devise the 2013 budget, while coming up with structural reforms that keep Mr Hollande’s promise to protect jobs and at the same time boost the competitiveness of French companies.

    Some Socialist legislators have said they will oppose the 2013 deficit plans, while Jean-Luc Mélenchon, the far left presidential candidate who threw his support behind Mr Hollande, broke his post-election silence at the weekend to berate the government.

    “Hollande is a market liberal like those who have already driven the Greek, Spanish and Portuguese disasters,” he said. “Why have we not passed a law against market-driven redundancies?”

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