In his 2013 budget the president's ambitious plan is to reform French finances while avoiding the pain of cuts like Spain's
It took just over four months for the tide of public opinion to turn against François Hollande: at the start of September a poll revealed that 68% of French people were pessimistic about their country's future under their new president. And that was the common line before Friday's announcement of the 2013 budget, which will find him even fewer friends in the country.
Pierre Moscovici, the finance minister, has boasted that no previous government has attempted to reduce the budget deficit by 1.5% in a single year – from 4.5% to 3% – and all that with almost nonexistent growth. But it is precisely this kind of ministerial pride that French people are worried about – whether they belong to the group who will be heavily taxed or are one of those 3 million unemployed who can't see how the austerity budget will help them find a job.
Admittedly, a drop in popularity will have always been part of Hollande's calculations. With no elections for another two years, his government will feel it is wiser to take tough measures now rather than later, hoping that positive results will show when voters go back to the polls. Two years: that's the period president Hollande has said would be needed to turn the clock back on unemployment.
Still, the proposed budget is far more of a shock than anyone could have predicted only a few weeks ago. It promises to achieve the eurozone-wide 3% budget deficit ceiling as early as 2013, a target Hollande has maintained despite the deterioration of the economy, with a mild recession under way.
To do so will require a major effort, whose chance of success has divided opinions. The government needs to find an additional €30bn next year, and has chosen to divide this amount in three: one-third in spending cuts, and two-thirds in new taxes – half for businesses and half for individual taxpayers.
Liberal economists criticise this division: they argue that state spending should have been cut much further, with fewer new taxes in a country that is already one of the bigger taxers in Europe. They fear job creation will suffer as both businesses and consumers are forced to tighten their belts. Technology entrepreneurs have been particularly vocal since Friday, complaining about a 60% tax on profits when selling a company – a sharp increase which, they say, will discourage the innovation sector.
On the other side, leftwing critics of the socialists such as the former presidential candidate Jean-Luc Mélenchon denounce an austerity package designed to satisfy financial markets and Europe's liberal vision, which is not what Hollande promised the French in his campaign against Nicolas Sarkozy.
The "left of the left" is showing its muscle today, with a major demonstration planned in Paris against Hollande's choice to ratify the new European budgetary treaty in parliament, and not by referendum. The austerity measures in the new budget will have given leftwing voters an additional reason to join the march.
Government spokesmen defend their approach as both orthodox and fair. Moscovici made a passionate plea for the reduction of the budget deficit – and therefore the French debt burden – in an interview with Le Monde this weekend. He defended a "just" approach in which the tax burden will fall on big corporations and not small and medium-sized companies, and called upon the 10% richest French people to save the nation's social system. "Rigorous but leftwing", cheered the left-leaning Libération, in a rather Pravda-like fashion.
Unlike the worst-affected states of southern Europe, France has apparently not given up on saving its generous social system – while simultaneously following an orthodox path of deficit reduction. The budget has allowed the country to gain time, and France is currently borrowing on financial markets at record low, sometimes even negative, rates.
All this is a far cry from former president Sarkozy's gloomy warning during last spring's election campaign: "Vote for Hollande and you'll have a Greek-style situation in less than two weeks."
Hollande's gamble is to put the country's finances in order without having to go through the deep and painful cuts that Spain is imposing on its people, or the hard and equally painful social reforms that Germany underwent years ago.
Mission impossible? The answer will emerge in the next few months, in the toughest economic environment possible.
 |
| READ THE ORIGINAL POST AT www.guardian.co.uk |