Hollande may be forced to deepen cutbacks

Sat, May 12, 2012, 01:00

FRENCH PRESIDENT-ELECT François Hollande may be forced to make deeper-than-expected cuts in spending after he said the public finances were in a worse state than Nicolas Sarkozy’s outgoing government had claimed.

Mr Hollande pledged during the election campaign to cut the deficit to 3 per cent of GDP by 2013 and to balance the budget by the end of his five-year term. He said that would be achieved by a combination of tax hikes and spending reductions, although neither Mr Hollande nor Mr Sarkozy spelled out where cuts would be made.

The scale of the task facing the incoming president was underlined yesterday when the European Commission forecast that France’s deficit would fall to only 4.2 per cent in 2013 and that economic growth would be 1.3 per cent instead of the 1.75 per cent that Mr Hollande and Mr Sarkozy assumed.

The socialist president-elect, who has already ordered an audit of the state accounts for the end of June from the Cour des Comptes, France’s public auditor, said the commission’s forecasts vindicated his suspicions that the Sarkozy government had painted an inaccurate picture of the state finances.

“I’ve known for several weeks that there’s been a worse deterioration of our public accounts than what the outgoing government has told us,” he said.

“Now we have the confirmation and it’s worth looking at and analysing. I will wait for the report from the Cour des Comptes before taking the necessary decisions,” he added.

Although he promised to rebalance Europe’s recovery efforts towards growth and outlined new domestic spending plans, Mr Hollande made clear during the campaign that some cutbacks would also be required.

If growth turns out to be closer to the commission’s forecast or the national audit reveals new gaps in the finances, he may be forced to defer some spending or accelerate his cutbacks.

“We are waiting for the French authorities to decide which measures will be introduced for 2013,” EU Economic and Monetary Affairs Commissioner Olli Rehn said in Brussels.

Mr Hollande plans to fulfil campaign spending promises, including the hiring of 60,000 school staff, by raising taxes on the rich and pruning spending in some areas.

“There are certainly deficits, things hidden in the shadows,” Jean-Marc Ayrault, the Socialists’ parliamentary leader and a candidate for prime minister, said of the audit.

“We will discover the reality and strike a balance between fostering growth and making the necessary efforts to reduce the debt.”

Mr Sarkozy, despite his tough rhetoric, took only tentative steps in putting France’s finances on an even keel and the country was stripped of its prized triple A credit rating by Standard Poor’s on his watch.

Outgoing budget minister Valérie Pecresse dismissed the possibility of bad news hiding in the public accounts.

“The commission’s forecasts are a serious warning against foolhardy spending promises that the new president made during the campaign,” she said.