Hollande wields axe to recoup billions

Tue, Sep 11, 2012, 01:00

FRANCE IS braced for its biggest round of budgetary tightening in half a century after President François Hollande lowered the economic growth forecast and pledged to make €30 billion in savings next year.

In a prime-time television interview watched by almost 10 million people, Mr Hollande pushed back against against claims of inertia, declaring he was “in battle mode” to kick-start France’s faltering economy and ensure a balanced budget by the end of his five-year term.

He said the government would raise an extra €20 billion in tax and make €10 billion in cuts in the 2013 budget later this month. The education, security and justice budgets would be protected, but beyond that all arms of the state would have to play their part.

“It’s a considerable effort. It’s never been done in the history of the Fifth Republic, but it’s my responsibility,” Mr Hollande said.

The cutbacks coincide with another lowering of the government’s growth forecast. It expects the economy to expand by “just over zero per cent” this year and 0.8 per cent – down from a previous projection of 1.2 per cent – next year.

Despite the poor outlook, the government insists it will reach its deficit target of 3 per cent of GDP next year, from 4.5 per cent in 2012, and remain on track for a balanced budget by 2017.

France is currently paying record low interest rates to borrow money, but the government fears its high debts and deficits could drag the country deeper into the euro zone crisis.

Stung by recent poor approval ratings and opposition claims that he was moving too slowly to deal with France’s economic troubles, Mr Hollande said he was “accelerating things” and warned ministers that their settling-in period after the May presidential election was over.

“I’m not going to do in four months what my predecessors haven’t done in five or 10 years,” he said.

Mr Hollande pledged to turn the economy around within two years, and predicted that unemployment – currently at a 13-year peak of just over 10 per cent – would begin to fall within a year.

Of the €30 billion in savings next year, two-thirds will come from tax increases on companies and rich households. Mr Hollande said he would act on his election promise of a 75 per cent tax on income over €1 million, but signalled the measure would apply only for the next two years.

Mr Hollande also said he wanted to reform the labour market so as to protect jobs and at the same time make the system “more supple”, allowing companies to adapt to the highs and lows of the economic cycle. If trade unions and employers did not agree a “historic compromise” on the issue by the end of the year, he warned, the government would impose its own plan.

The decision to privilege tax increases over spending cuts was dismissed as unfeasible by the right-wing UMP party. “I’m very worried for France,” said Jean-François Copé, one of the candidates to succeed former president Nicolas Sarkozy as party leader.

“I was budget minister for three years, and I have retained one lesson – that is, to reduce the deficit, one starts by cutting public spending and not by raising taxes.”

Far-left leader Jean-Luc Mélenchon said the plan guaranteed that the deficit would widen and unemployment would rise: “€30 billion withdrawn from economic circulation in France – that necessarily, inevitably, absolutely spells collapse,” he said.