France Turns to Budget Cuts to Meet Deficit Targets
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France’s national audit office has warned that the French economy must cut up to 43 billion euros in spending this year in order to meet its deficit targets. The audit findings are sobering for Hollande who was one of the toughest critics of Europe’s austerity drive as France turns to a mix of tax increases and spending cuts to balance its 2012 budget.
France’s national audit office has warned that the French economy must cut up to 43 billion euros in spending this year in order to meet its deficit targets. The audit findings are sobering for Hollande who was one of the toughest critics of Europe’s austerity drive as France turns to a mix of tax increases and spending cuts to balance its 2012 budget.
Following a weaker than forecast first half growth, France’s national audit office, the Cour des Comptes, has warned Hollande’s socialist government that it would need to raise as much as 10 billion euros ($12.7 billion) this year and about 33 billion euros next year to reach its deficit reduction targets.
Responding to the report, Prime Minister Jean-Marc Ayrault said yesterday that without corrective measures, the 2012 deficit will be higher than 4.5 percent target of gross domestic product.
Ayrault added that a mix of higher taxes and spending cuts will be imperative to keep the economy on track, echoing Finance Minister Pierre Moscovici’s comments that the country’s budget deficit targets are “non-negotiable”.
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Head of the Court of Auditors, Didier Migaud, told a news conference:
[quote] The country is in the danger zone in terms of its economy and public finances. We cannot rule out the possibility of a debt spiral … Missing deficit targets would damage France’s credibility and could cause an unsustainable debt increase, making it impossible to finance it at sustainable interest rates. [/quote]
The comments appeared aimed at preparing French people—many of whom are on summer holiday—to higher tax bills and lower benefits, and reassuring Germany that France is committed to fiscal discipline.
Hollande, who declared triumphantly in May that ‘austerity can no longer be inevitable’, would now likely have to make tough savings and public sector cuts to meet the European Union deficit goal of 3 percent of GDP – much to the fury of the public and leftist allies who voted him into power.
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Reuters commented:
[quote] Economists have warned for months that faltering economic growth was gnawing a hole in state revenues, but Hollande kept the issue largely under wraps until he won the presidency and his Socialist party topped parliamentary elections in June. [/quote]
While Hollande had promised during his election campaign that reducing the budget deficit would be “imperative”, he never explicitly stated his steps to achieve this.
Instead, the Wall Street Journal points out that in the first weeks of his five-year mandate, Hollande “appeared to be distributing new benefits”, such as reversing the rise in retirement age from 62 to 60 introduced by his predecessor, as well as raising the minimum wage by more than inflation.
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