Jospin bets on growth to save poll pledges

Maastricht hurdle: France's new regime and Germany's old stagers struggle to get fit for monetary union

It is a ritual dance. The French government proposes a radical change in the country's public welfare system. Pressure groups of both Right and Left call their supporters onto the streets. The government backs down or, at least, offers a compromise.

Much of the previous government's time and credibility were expended in this way. In the case of the new Socialist-led government, the process has been squeezed into one week.

In his general statement of policy last Thursday, the Prime Minister, Lionel Jospin, made one unexpectedly bold, money-saving proposal. He suggested that child allowances should be paid in future only to families with a monthly income of less than Fr25,000 a month (pounds 2,600, or pounds 31,200 a year). In other words, Mr Jospin was suggesting a means test, a principle which the French welfare system has always strenuously refused.

Alarm bells rang. Socially right-wing family associations said the scrapping of middle-class child allowances struck at the heart of family values and would send France's (healthy) birth rate into rapid decline.

The unions, and Communist and left-wing Socialist politicians, suspected they saw the beginning of means-testing throughout the entire welfare system, something far more radical than the previous right-wing government had dared to propose. They fear Mr Jospin may apply the same approach to the chronically overspent public health system, reducing public coverage for wealthier people and forcing them to bridge the gap with private health insurance. The government is under pressure to meet the budgetary guidelines for membership of European monetary union and fund its reflationary campaign promises. There is some evidence that it is thinking of wider means-testing in health and welfare policy.

Or was thinking. The vehemence of the response to the abolition of middle class family allowances has sent the government into a confused retreat. Within one day of Mr Jospin's statement, his deputy, the employment minister, Martine Aubry, said the Fr25,000 threshold was up for negotiation. Not good enough, said the pro-family groups. Demonstrations were called on Tuesday, including one outside the National Assembly.

On Wednesday, the official government spokesperson, the culture minister Catherine Trautmann, said there was no question of adopting means testing throughout the health and welfare system. Various other government figures suggested ways in which the reform of family allowances might be watered down. All the compromises were rejected by the conservative, pro-family campaigners.

The revolt is the first domestic test of the nerve of the Jospin government, which insists that, unlike its predecessors, it will act as it speaks and deliver its promises. Delaying or watering down the family allowance cuts - which could save up to pounds 1bn in a full year - will make it even harder to meet the guidelines for Emu membership this year.

The Jospin government has let it be known it hopes to reduce the budget deficit to 3.4 per cent of GDP in 1997, well over the Maastricht treaty target of 3 per cent. But it hopes to make this politically acceptable to its EU partners, especially Germany, and economically acceptable to the markets, by proposing a 1998 budget later this year which hits the 3 per cent figure.

All estimates, both official and unofficial, suggest that next year's deficit will be well over 4 per cent, even before Mr Jospin starts to spend money on his campaign promises. How do the figures add up? At present, they don't. Mr Jospin is playing for time and praying for steeper growth in the French economy.

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