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ORIGINAL FRENCH ARTICLE: François Hollande visse les boulons de l’austérité jusqu’en 2017

by Stéphane Guérard

François Hollande to Tighten Austerity Screws Until 2017

Translated Tuesday 11 September 2012, by Gene Zbikowski and reviewed by Bill Scoble

On Sept. 7, the French president repeated that he intends to lower the government deficit to 3% of GDP by 2013, at the price of reducing government services in order to save some 30 billion euros. The Cour des Comptes (1) will become the constitutional watchdog of budget austerity with the adoption of the European budget pact, as dictated by the French president’s office. Holding a referendum has become all the more important.

François Hollande is preparing his next coup, as though the European budget pact had already been voted by the Parliament. The French president unveiled his austerity gift package for 2003 … and the coming years, before the Cour des Comptes on Sept. 4. Here are the details.

The golden rule over all else

On Sept. 7, François Hollande confirmed that he intends to lower the government deficit to 3% of France’s gross domestic product in 2013, as against 4.5% expected at the end of 2012, declaring that the difficult economic environment makes reaching that target all the more necessary. He accepted the estimate of the Cour des Comptes, which corrects the budget imbalance to 30 billion euros in 2013. François Hollande pointed out that 10 billion euros will be saved by cutting government expenses, but without touching debt repayment and pensions. “This is going to be the biggest effort in the last 30 years.”

François Hollande has put a damper on his Bourget speech, in which, as a candidate, he designated the financial markets as his main enemy. According to Hollande, the effort demanded of the French is aimed above all at “maintaining the confidence of the markets in France, in order to finance our debt at the lowest possible interest rates, which is the case today,” but also to “regain the required margin for maneuver” in the future.

Putting government on a diet

To arrive at the high holy figure of 3%, the government will again be put on a diet. François Hollande announced that a government “seminar” on “modernization of government action” will be held in late September, following which he will draw up a “road map” on the “government’s priority missions.” This meeting sadly brings to mind the preparatory meetings that led to the five years of General Review of Public Policies desired by the previous government.

The French president met criticism by criticizing the GRPP set up by his predecessor, Nicolas Sarkozy, saying that the GRPP was “mechanical and purely inspired by an accountant’s point of view.” François Hollande promised discernment on his part. A “government seminar on the modernization of government action” which “will be held at the end of this month under the authority of the Prime Minister,” Jean-Marc Ayrault, is to draw up “an inter-ministerial road map of the government’s priority missions." He added that he wanted the government to be “a strategist,” “a protector,” and "a guarantor of environmental, territorial and social cohesion.”

This “road map” will then be the object of special “consultation” at both the local and national level, and “will be finished at the end of November.” The road having already been laid out, one may well wonder what margin of maneuver will be left to the trade unions at this consultation.

“Fair” tax hikes

The government will not only have to cut operating costs, it will also have to increase its revenues. The French president walked on egg shells in announcing tax hikes. “I, together with the government, reject an undifferentiated and general increase in taxes on households, which would bite into their purchasing power,” the president insisted. “Those who have the most will have to pay more.”

But he gave no details on taxing the biggest fortunes at a 75% rate. Under pressure from the MEDEF, the French bosses’ association, actually assessing this tax seems to be problematic for the government. On Sept. 7, Finance Minister Pierre Moscovici affirmed that this 75% tax on incomes of over a million euros a year – one of Hollande’s election campaign promises – will be “strictly respected. Any other interpretation is unfounded.”

As to companies, François Hollande said, without giving more details, that the tax burden would be shared between big corporations and small and medium sized companies “in such a way as to tax without harming competitiveness.”

The Cour des Comptes celebrates austerity

François Hollande has confided the role of guardian of budgetary orthodoxy to the Cour des Comptes. It will have the final say over a new High Council for Government Finances, and will be responsible for making sure that the golden rule is applied. The president does not doubt for a single moment that Parliament will adopt the golden rule, despite calls (including a call by l’Humanité) for a referendum on adopting the European budget pact.

At the heart of the president’s budget strategy, the High Council for Government Finances will notably be responsible for checking the economic growth forecasts on which budgets are founded. “For the French Republic, this new institution will be a guarantee of credibility and transparency. In the past, too many governments have too often allowed themselves to be guided by exaggeratedly optimistic forecasts, which have usually been proved false,” said François Hollande, whose government must bite the bullet and reduce its economic growth forecasts for 2013.

The present forecast of 1.2% growth is twice as high as the economists’ conscensus figure. They are betting on economic growth close to 0.5% or 0.6%.

(1) Cour des comptes – the French equivalent of the National Audit Office in the U.K. or the Government Accountability Office in the U.S.

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