Jospin relies on growth to save Emu hopes

French public finances are in a "serious" mess, the new Prime Minister, Lionel Jospin told parliament yesterday.

Nonetheless, the Socialist-led government plans to meet the deadline for creation of a single currency by 1999. It hopes, growth permitting, to reduce taxes, starting with VAT.

It will go ahead, although not immediately, with its promises to reduce working hours and create new state-sector and subsidised jobs. It will abandon, or much reduce, the budget-balancing, programme to sell off state- owned industries. It will increase, by 4 per cent, the statutory minimum wage.

Two large public works projects, energetically opposed by Mr Jospin's Green government partners - the Rhone-Rhine canal and the Superphenix experimental neutron reactor - will be abandoned. This will relieve a little of the pressure on the state's finances but cost an estimated 75,000 jobs.

Mr Jospin's general policy speech to the National Assembly contained no real surprises. Equally, it contained few clues on how Mr Jospin intends to square the seemingly contradictory pledges of last month's successful election campaign.

If public finances are in such a mess - an audit will be published in mid-July - how can Mr Jospin meet the targets for single-currency membership without tax rises or spending cuts?

Mr Jospin gave a brisk and well-written one-hour speech, repeating his pledge to govern openly and honestly, but did not directly address this conundrum. He promised a "first appreciation" of the government's economic and fiscal options next week. The first formal budget proposals will be delayed, as expected, until September.

Mr Jospin seems to be placing all his bets on an increase in growth, pumped up by more domestic spending, fired by the increase in the minimum wage, and possibly a small cut in VAT on basic items. Although he gave no figures, a series of leaks in recent days suggest that France is heading for a budget deficit this year of between 3.5 and 3.7 per cent of gross national product, well over the Maastricht treaty guideline of 3 per cent. A spurt in growth, now around 2 per cent, could bring France within touching distance of the guideline. But time is running out.

After the contradictory signals of the last ten days, the markets and Mr Jospin's EU partners were waiting for a clear statement yesterday of French intentions on Economic and Monetary Union (Emu) and the single currency.

Mr Jospin spoke of the "volonte" (intention) of his government to meet the 1999 timetable for Emu but he gave no commitment on the budgetary guidelines. He also said that the resolution on growth and job-creation, obtained by France in Amsterdam this week, should be seen as only a first step. France would be asking for more.

On non-economic questions, Mr Jospin pledged to continue the professionalisation and modernisation of the French armed forces. The abandonment of military service would be maintained.

On immigration, Mr Jospin pledged to be tough on illegal migrants but said he would repeal one key element of the immigration and nationality laws passed by centre-right governments. The right to French citizenship of anyone born on French soil would be restored.

Overall, the speech, though well-crafted, was an exercise in playing for time. The promise of a cut in the working week to 35 hours would be delivered, within the lifetime of the parliament, in other words within five years. The promised reduction in VAT on basic items would be "studied" by the finance ministry.

Mr Jospin was against privatisation and absolutely against the privatisation of public "services". He left the door slightly ajar, however, for at least a partial privatisation of those state-owned industries which needed to keep up with international competition. Which category would the planned budget-easing, sale of France Telecom come under? Possibly the second.

In the third week of his government, Mr Jospin is still trying to keep four plates spinning: his commitment to enter Emu on time; his pledge not to plunge France into renewed austerity; his ideas for putting more money into French pockets; and his promise always to do as he promised.

Even the centre-left newspaper Liberation, a warm supporter of Mr Jospin, said yesterday that he would, sooner rather than later, have to do something unpopular. Honesty was all very well, wrote the newspaper's editor-in- chief, Pierre Briancon. It was more important to get things done.