François Hollande's budget – the toughest in 30 years – is ameliorative but it is hardly a radical departure.
Rigour, austerity and recession are out. Combat, exceptional measures and solidarity are in. With those costume changes, François Hollande has just delivered the toughest budget in 30 years. But he has done what he said he would do. He hit the super-rich with a 75% tax. It will only effect a symbolic number of taxpayers, about 2,000 in all, but in a country which has turned its back on bling-bling presidents, Mr Hollande is sticking to his script. Two thirds of the €30bn the French public purse has to recoup will come from tax rises – a percentage that would have Ed Balls exiting stage right – and one third from a public spending freeze.
The larger question is whether French austerity will prove any less counterproductive than the Greek, Spanish or Portuguese ones have been. The assumptions on which this budget are based are balanced on a hairpin – 0.8% growth? In combative mood, prime minister Jean-Marc Ayrault said this target was both realistic and ambitious, but it appears to be more ambitious than realistic. It is a leap in the dark, but a government has to make a plan, and – in dark times like these – there is no well-lit way to jump. As Labour assembles in Manchester, Mr Balls ought to reflect that uncertainty about the future dogs social democrats when they come to office. In these circumstances of wild flux, the single most important thing to hang on to is flexibility to respond to events. Rushing to repeat the sort of restrictive spending commitments made ahead of the 1997 election at this stage in the game would be a mistake.
Already the French government has been forced to concede that France will not be out of the red by 2017. The remaining hope that the public deficit can be reduced from its current level of 4.5% to 3% of GDP in conditions where the economy is stagnating continues to strain credibility. Even in good times, such a cut would represent a considerable heave. To achieve this, Mr Hollande would have to pull off public-sector reforms that both of his conservative predecessors, Nicolas Sarkozy and Jacques Chirac, ducked.
There remain, too, fundamental concerns about the direction of travel. The central charge against European leaders is they are attempting to counter deflation with deflationary policies. That is not just a point made by the Paul Krugmans of this world. It is now being made by the IMF. By hurting the near-term growth outlook, tighter fiscal policy could be leading to wider rather than narrower spreads over German bonds. Especially so if it involved an outright decline in the overall size of the economy. Killing the economy while raising debt will not work. Seen from this perspective, Hollande's budget is ameliorative but it is hardly a radical departure.
Borrowing at cheap rates of interest, France is petrified of another Moody's downgrade. Any jacking up of the rate to Spanish levels would push these finely balanced budget projections over a cliff. Mr Ayrault has argued that if they abandoned the 3% target, France would become Italy and Spain overnight. The black hole in Spain's banking sector was declared to be €59.3bn, which caused sighs of relief because it could have been worse . But the more essential your economy is to the euro, the better terms you can demand. A Spanish premier is always going to have a louder voice in Brussels than that of a Greek premier. If France ever needed a bailout, it could demand one on better terms.
Mr Hollande is to be applauded for sharing the burden on the people who can most afford to pay it. But he remains a hostage to fortune. With over 3 million unemployed, he has no leeway for failure. It is not his fault, but it is the legacy he has taken on. If small French companies who have been spared the pain in this budget don't start hiring, and soon, France will have increased debt and declining means to pay it.
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