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2nd Oct 2022

France 'rejects austerity' in controversial budget

  • France's Moscovici will face his parliament hearing the day after his country's government rejected calls for it to speed up its austerity programme (Photo: Parti socialiste/Philippe Grangeaud)

France has put itself on a collision course with its EU partners after rejecting calls for it to adopt further austerity measures to bring its budget deficit in line with EU rules.

Outlining plans for 2015 on Wednesday (1 October), President Francois Hollande's government said that “no further effort will be demanded of the French, because the government — while taking the fiscal responsibility needed to put the country on the right track — rejects austerity.”

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The budget sets out a programme of spending cuts worth €50 billion over the next three years, but will result in France not hitting the EU's target of a budget deficit of 3 percent or less until 2017, four years later than initially forecast.

The savings will offset tax cuts for businesses worth €40 billion in a bid to incentivise firms to hire more workers and reduce the unemployment rate.

In a statement on Wednesday, finance minister Michel Sapin said the government had decided to "adapt the pace of deficit reduction to the economic situation of the country.”

Last year, France was given a two-year extension by the European Commission to bring its deficit in line by 2015, but abandoned the target earlier this summer.

It now forecasts that its deficit will be 4.3 percent next year. The country's debt pile has also risen to 95 percent of GDP, well above the 60 percent limit set out in the EU's stability and growth pact.

Meanwhile, Paris has revised down its growth forecast from 1 percent to 0.4 percent over the whole of 2014, and cut its projection for 2015 to 1 percent from 1.7 percent. It does not expect to reach a 2 percent growth rate until 2019.

France, the second largest economy in the eurozone, has come under repeated pressure from the commission to speed up its deficit reduction programme, overhaul its pension and welfare system, and liberalise its labour market.

But a flat-lining economy, which failed to grow in the first six months of 2014, is reducing the impact of government spending cuts.

Hollande is also facing the lowest personal popularity ratings of any French president since the Second World War.

Under the bloc's revised economic governance rules countries can face fines of up to 0.2 percent of GDP if they fail to take action to curb excessive debts and deficits. The commission is expected to decide whether to grant another extension later this month.

The timing of the budget is unfortunate for France's nominee to be the EU commissioner responsible for implementing the bloc's economic governance rules.

Pierre Moscovici, who served as Francois Hollande's finance minister for two years before resigning in April, will appear before MEPs on Thursday morning for a three-hour hearing.

Moscovici's nomination in September has already caused disquiet in Berlin, with German finance minister Wolfgang Schaueble repeatedly voicing reservations about a French socialist getting the job.

Meanwhile, the parliament's right-wing groups have warned they will veto Moscovici if the assembly's Socialist and Green groups oppose one of the conservative candidates, with Spain's energy commissioner, Miguel Arias Canete, the most likely to fall.

Analysis

France falls victim to EU's economic powers

Being singled out for censure by the European Commission is nothing new for the government of Francois Hollande. But the timing of the latest veiled threat from Brussels could hardly be worse.

France wants billions from EU's 'New Deal'

France wants €10 billion a year from the EU’s “New Deal” fund, amid warnings that its budget profligacy could harm the “credibility” of EU financial rules.

EU unlikely to reform treaties, French PM tells Cameron

Re-opening the EU treaties to satisfy the UK would be “perilous” and deflect attention from dealing with the bloc's struggling economy, French prime minister Manuel Valls has said on a visit to London.

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