French Leaders Cite Recesssion in Backing Off From Budget Deficit Goals

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PARIS -- Citing a Europe-wide recession, France's Socialist government is moving away from its promise to bring its budget deficit down to 3 percent of gross domestic product this year, arguing that the recession creates an exceptional circumstance requiring less austerity.

"I don't think our credibility will be damaged if something exceptional intervenes," France's finance minister, Pierre Moscovici, said Monday. "If we have a deeper recession, we'll have an even tougher time hitting our targets. We must not add austerity to the risk of recession."

The recession in the euro zone "is a collective problem," he said. "It's unacceptable that eurozone growth in the last quarter was minus 0.6 percent."

At the same time, the economic squeeze combined with an already high rate of taxation will make it easier for the government to focus on spending cuts, senior ministry officials said.

Mr. Moscovici is facing pressure for more spending from other government ministers in a period of stagnant growth -- zero for 2012, with minus 0.3 percent in the last quarter. But he insisted Monday that public spending must come down, with ministers cutting expenses.

The government's main task, he said, was to promote growth and cut unemployment, but also to get public finances under control. The government wants to begin to reduce France's accumulated debt, around 90 percent of G.D.P., and gradually reduce the government's share of G.D.P., currently more than 56 percent.

France has committed itself to the European Commission to hit the 3 percent target this year, but Mr. Moscovici emphasized the government's progress in reducing France's structural deficit -- which is supposed to be unaffected by economic cycles -- by two percentage points this year. That was the key figure, he argued, saying: "Our true commitment was to reduce the structural deficit." And he pointed to a letter last week from Europe's commissioner for economic affairs, Ollie Rehn, who suggested that countries might get more time to cut their deficits if they could demonstrate seriousness in structural changes.

France would wait to see European Commission growth forecasts later this week before deciding what to do, Mr. Moscovici said, and then hold talks with European officials in Brussels to come up with a solution. France would like to avoid another revised budget, but its actions will depend on its talks with Brussels, Mr. Moscovici said.

For the moment, he said, he was holding to the 3 percent goal, but he acknowledged that France's national auditors, the Cour des Comptes, said last week that given low growth, it would be next to impossible to hit the target without altering current plans. And the auditors again recommended that the government do more to limit spending and not raise taxes further.

On a proposed free trade agreement between the United States and the European Union, which is intended to promote economic growth, Mr. Moscovici said that France is "open but vigilant." He said that "an opportunity exists," but there are "irritants" that will need to be negotiated. He cited issues of concern to France, like agricultural regulations and "the cultural exception" -- France subsidizes some of its own cultural products, like films, and promotes local content. Restrictions in the French marketplace are one reason why the Obama administration was initially reluctant to get too deeply involved in a free-trade negotiation. As one senior administration official in Washington put it, "After we negotiate hard for two years, the French will kill it anyway." But pressed by Chancellor Angela Merkel of Germany, Mr. Obama supported the idea in his State of the Union Message last month.

On the much-discussed effort by President François Hollande of France to temporarily raise the highest tax rate to 75 percent on those earning more than one million euros a year -- a law found to be unconstitutional -- Mr. Moscovici said that the government was working on a new tax for the wealthy, but refused to commit to a rate of 75 percent. "It's an exceptional tax for exceptional times on exceptional income for an exceptional duration," he said.

"I'd like to do 75 percent but if we can't we won't," Mr. Moscovici said, adding, "I don't want another sanction" from the court.

world

This article originally appeared in The New York Times.


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