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'No Pain' French budget not realistic: economists

05 june 2012, 12:58
0
Jean-Marc Ayrault, French Prime Minister. ©AFP
Jean-Marc Ayrault, French Prime Minister. ©AFP
France's new government promises to reduce the country's public deficit without resorting to austerity measures, a pledge some economists say it may not be able to keep and probably should not, AFP reports.

Prime Minister Jean-Marc Ayrault will soon be launching the Socialists' first steps to keep France on track to reduce the public deficit to 4.5 percent of gross domestic product this year and the EU ceiling of 3.0 percent in 2013.

Adjustments to the 2012 budget will be presented within weeks, followed by the 2013 budget proposal and multi-year fiscal plan in September.

But while Paris is under pressure from its European and international partners to slash spending, Finance Minister Pierre Moscovici said Monday France would make its own choices on how to meet its commitments to lower its deficit.

Asked in Brussels if it could be done without pain, Moscovici replied: "Without austerity measures, yes, we will do that."

In Paris, Socialist Party leader Martine Aubry rejected the conservative orthodoxy that the deficit must be reduced solely by cutting spending.

"We think there is enormous room for manoeuvre to impose additional taxes (targeting) ... those who have benefited at the expense of others," she said.

Much as former president Nicolas Sarkozy banned the use of budget "severity" by his conservative ministers, Socialists frown on the use of "austerity," arguing that the emphasis has to be on growth.

Since taking office Moscovici has preferred to speak of "responsible," "serious" and "credible" budgets.

---- 3.9 billion euros in savings needed annually ----

The statements follow a number of reports released in the past few weeks calling on France to get to grips with its public finances.

The Finance Inspector General was the latest following the Organisation for Economic Cooperation and Development, European Commission and the French Auditors' Court to tell the government that more must be done.

The Finance Inspector General calculated that the government needs to find 3.9 billion euros ($4.9 billion) each year if France is to keep its promise to bring its budget back into balance by 2017.

As the report was commissioned by the former government, it was conducted under Sarkozy's formula of three-quarters of savings to come from cuts and the remaining amount from increased taxes.

France's new President Francois Hollande has however indicated the Socialists will aim for balance in reducing spending and raising taxes.

His programme foresees not only higher taxes on big companies and the rich, but also holding increases in public spending to 1.0 percent above inflation.

"The trend over the past 10 years has been a higher increase of between 2.1 and 2.5 percent," said Eric Heyer at the French Economic Observatory.

He says the government will be able to meet the 3.0 percent deficit target next year without austerity measures.

Jacques Delpla, a member of the Economic Analysis Council that advises the prime minister, holds a similar view.

Meeting the 3.0 percent target "implies a relatively tough austerity policy," he said.

But Delpla also questions the wisdom of a quick fiscal retrenchment.

"We shouldn't have a three percent fetish," he said, calling it "stupid" to drastically cut the deficit when "the economy is collapsing."

Heyer believes it is still possible to "find measures that have little impact on growth," such as eliminating tax loopholes and reducing waste in government.

But "if all European countries adopt new austerity plans to meet their 2013 targets, there will be deep recession and ultimately no one will succeed," he argued.

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