France 'refuses austerity' as government reveals it will miss EU deficit deadline by a further year

Former PM François Fillon complained that the budget plan risked a 'recessionary effect'

Anne Penketh,Ben Chu
Wednesday 01 October 2014 18:28
"We are committed to being serious about the budget, but we refuse austerity" - Michel Sapin, Finance Minister
"We are committed to being serious about the budget, but we refuse austerity" - Michel Sapin, Finance Minister

The French government has announced public spending cuts of €21bn (£16bn) in its annual budget, while simultaneously throwing down a clear challenge to Brussels and Berlin over the economic management of the eurozone.

“We are committed to being serious about the budget, but we refuse austerity,” said Michel Sapin, the French Finance Minister, confirming the country would meet EU-prescribed budget deficit requirements two years later than promised.

Previously, France had promised its European partners that it would bring its budget deficit below 3 per cent by next year, a deadline that had already been extended from last year.

But in the budget outlined today, the deficit is projected to fall from 4.4 per cent of output this year to 4.3 per cent next year, and 3.8 per cent in 2016. It will not dip below the 3 per cent mark until 2017, when presidential elections are to be held.

Mr Sapin said the government had decided to “adapt the pace of deficit reduction to the economic situation”, apparently fearing that France could tip back into recession with zero growth and record unemployment.

The government hopes to boost growth by easing the tax burden on businesses. But former Prime Minister François Fillon complained that the budget plan “turns its back on all of France’s commitments on deficit cutting” and risked a “recessionary effect”.

Mr Fillon, who is proposing slashing the civil service and a 39-hour week instead of the current 35 hours, warned that France is only remaining afloat because of low interest rates. It risks triggering the collapse of the euro in the case of a “grave financial accident”, he said.

Analysts said that local authorities would bear the brunt of the cuts, expected to lead to higher local taxes, while welfare benefits are also to be curbed. The budget provides for a €3 rise in the television licence and a €0.02 per litre increase in the price of diesel.

However, in a gesture to low-income earners, the Prime Minister, Manuel Valls, last month abolished the lowest tax band, which, he said, would mean that nine million fewer people would be liable for income tax.

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