Monday

3rd Oct 2022

Paris announces fresh austerity in bid to save triple-A rating

  • Fillon (l) has committed to further austerity measures as credit ratings agencies begin to target France (Photo: The Council of the European Union)

The French government has announced a fresh round of austerity measures worth some €19 billion in spending cuts and tax hikes in an attempt to stave off a downgrade of the country’s triple-A credit rating.

The move, announced by Prime Minister Francois Fillon, is the second such austerity package in three months, leaving citizens to wonder if this is the last such bout of belt-tightening.

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In August, the government unveiled €12 billion in spending cuts and other fiscal rearrangements, but they have yet to be implemented.

“We have one objective: protect French people from the serious difficulties experienced by several European countries,” the prime minister said in announcing the measures. “Our economic, financial and social sovereignty demands collective and prolonged efforts, and even some sacrifices.”

The government is to accelerate the move to raise the retirement age from 60 to 62, bringing the change into force from 2017 instead of 2018, a move that could provoke trade unions’ ire. The originally planned change in retirement age provoked widespread strikes and blockades in 2009.

Value-added tax on a range of items, including on books, restaurant meals, animal feed and public transport will go up from 5.5 percent to seven percent.

Health spending is to be reduced by €700 billion, and housing and family benefits will no longer be indexed to inflation, but instead tied to the country’s growth rate.

But the measures also include an increase in taxes on the country’s largest companies, hiking corporate taxes by five percent from 2012 to 2013.

This move, unlike the increase in retirement age, will only be temporary until the country’s deficit declines to under three percent of GDP.

A number of tax loopholes will also be closed.

And the package will also see a freeze on the salaries of all members of the government, although, as the opposition was quick to point out, President Nicolas Sarkozy awarded himself a 150 percent salary rise immediately after entering office in 2007.

The savings will be spread over the next two years, with €7 billion in 2012 and €11.6 billion in 2013.

IMF warns France on budget deficit targets

The International Monetary Fund has warned France that it will have to carry out more spending cuts to ensure it reaches its deficit reduction commitments amid lower-than-expected growth expectations. Meanwhile Cyprus' credit rating was downgraded Wednesday raising the possibility that it could be the fourth eurozone country to need a bailout.

France launches inquiry after accidental downgrade

France has reacted with anger after a major ratings agency accidently suggested it had downgraded its credit rating status, but a prominent French economist believes the country is fighting the inevitable.

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