French ministers revolt against austerity

By Nick Ottens - For the Post | Comments (0) | Post comment

Leftist French ministers are openly revolting against the fiscal consolidation plans of Socialist Party President François Hollande. They complain their leader is seeking to placate German demands at the expense of France's economic recovery. Yet the spending cuts they rally against are hardly being made.

"Germany is demanding we sprint at a time when France needs to get its breath back," Benoît Hamon, a junior social economy minister, told the Le Parisien newspaper April 10. "If that continues, nobody will finish the race."

Hamon, a ruling party member, insisted he remains loyal to Hollande even if he believes austerity is no longer "tenable." That may not be the case with Industry Minister Arnaud Montebourg, an anti-globalist who ran to Hollande's left in the party's primary election in October 2011 when he got 17 percent of the votes.

Montebourg told Le Monde in an interview that was published April 9 that the president's austerity program "leads us collectively into a recessionary spiral."

"What is the point of fiscal consolidation if the economy goes to the dogs?" Montebourg wondered. "Budget discipline is one thing. Cutting to death is another."

Montebourg likely represents the views of many leftists whom Hollande convinced to vote for him last year when he appeared to mount a challenge to "German" austerity. They are disappointed now that it turns out France has little choice but to reduce its deficit, although Hollande's budgetary "rigor" (he refuses to call it "austerity") has meant mostly tax increases rather than spending cuts.

Four months after taking office May 15 last year, Hollande enacted 10 billion euros in budget cuts and 20 billion euros in revenue increases. The deficit is still projected to exceed the 3 percent maximum enshrined in European fiscal law, however. French Finance Minister Pierre Moscovici said on BFM TV television April 14 that it wasn't "reasonable" to expect the country to post a deficit far below 3 percent of gross domestic product next year. "The pace of fiscal consolidation must be compatible with the preservation of French growth," he explained.

Hollande agreed four days earlier the priority is economic growth. "The requirement is job creation. This policy has been fixed. I will not alter it," he said April 10.

Nor will he likely alter the balance between budget cuts and tax increases. The government is considering further tax hikes, including a "green" levy, as well as higher pension fees. There are few plans to cut public sector spending further.

The previous, conservative administration also raised taxes - on liquor, tobacco and soft drinks - to reduce a 90 billion euro shortfall in 2011. The tax increase partly financed a payroll tax cut to tempt businesses to hire, but there was also a "temporary" 5 percent corporate tax hike while France's regular 34.4 percent rate is already more than double Germany's 15.8.