'French President Must Cut Deficit, but How?' diff viewer (0/1)

This article is from the source 'nytimes' and was first published or seen on September 07, 2012 18:30 (UTC). It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.nytimes.com/2012/09/08/world/europe/french-president-must-cut-deficit-but-how.html

The article has changed 2 times. There is an RSS feed of changes available.

Previous version 1 Next version

Previous version 1 Next version

Version 0	Version 1
French President Must Cut Deficit, but How?	French President Must Cut Deficit, but How?
2012-09-07 18:35:05 UTC	2012-09-07 19:10:05 UTC (35 minutes later)
PARIS — Samir Chaffar shook his head slowly on a recent weekday as he scanned a raft of newspapers at a kiosk near the Louvre.	PARIS — Samir Chaffar shook his head slowly on a recent weekday as he scanned a raft of newspapers at a kiosk near the Louvre.
President François Hollande was preparing to cut €33 billion, or $42 billion, from the budget to keep the euro crisis from infecting France, the headlines read. How would the French withstand it, demanded Mr. Chaffar, a plumber whose business has slowed, when the economy was already stagnant and unemployment was at a 10-year high?	President François Hollande was preparing to cut €33 billion, or $42 billion, from the budget to keep the euro crisis from infecting France, the headlines read. How would the French withstand it, demanded Mr. Chaffar, a plumber whose business has slowed, when the economy was already stagnant and unemployment was at a 10-year high?
“When Hollande places austerity on us,” Mr. Chaffar said angrily, “things will get worse.”	“When Hollande places austerity on us,” Mr. Chaffar said angrily, “things will get worse.”
Mr. Hollande has reached a pivotal moment as the Continent’s debt crisis flares anew. He is pledging to push the country’s deficit down to 3 percent by the end of next year, to adhere to the rules of euro zone membership and prevent the nation from getting caught up in the euro’s latest troubles.	Mr. Hollande has reached a pivotal moment as the Continent’s debt crisis flares anew. He is pledging to push the country’s deficit down to 3 percent of gross domestic product by the end of next year, to adhere to the rules of euro zone membership and prevent the nation from getting caught up in the euro’s latest troubles.
But as a Socialist president who ran a campaign against austerity, Mr. Hollande is facing rising discontent as he prepares to assemble the package of tax increases and spending cuts required for that effort. How he performs could very well determine whether the ailing French economy succumbs to a spiral of decline the way that many other euro zone countries have done.	But as a Socialist president who ran a campaign against austerity, Mr. Hollande is facing rising discontent as he prepares to assemble the package of tax increases and spending cuts required for that effort. How he performs could very well determine whether the ailing French economy succumbs to a spiral of decline the way that many other euro zone countries have done.
Mr. Hollande has upset business leaders by pledging to make a series of tax increases. Political parties are bickering about whether he should even stick to a 3 percent deficit limit. And economists say they will not be surprised if the French take to the streets soon if Mr. Hollande winds up biting into the economy too deeply.	Mr. Hollande has upset business leaders by pledging to make a series of tax increases. Political parties are bickering about whether he should even stick to a 3 percent deficit limit. And economists say they will not be surprised if the French take to the streets soon if Mr. Hollande winds up biting into the economy too deeply.
“France is really at a crossroads,” said Jean-Paul Fitoussi, a professor of economics at the Institut d’Études Politiques de Paris. “There’s no sure answer as to whether France will escape the crisis.”	“France is really at a crossroads,” said Jean-Paul Fitoussi, a professor of economics at the Institut d’Études Politiques de Paris. “There’s no sure answer as to whether France will escape the crisis.”
“If there is social unrest, then market sentiment will change,” Mr. Fitoussi said. “If the policies cause growth to slow even more, market sentiment will change, too.”	“If there is social unrest, then market sentiment will change,” Mr. Fitoussi said. “If the policies cause growth to slow even more, market sentiment will change, too.”
On Friday, Mr. Hollande said the stagnant economy, which has been at a standstill for three straight quarters, made it imperative to cut the French budget. Better finances, he said, would mean a restoration of growth.	On Friday, Mr. Hollande said the stagnant economy, which has been at a standstill for three straight quarters, made it imperative to cut the French budget. Better finances, he said, would mean a restoration of growth.
“This will be the biggest effort in 30 years,” he said. On Sunday, he is expected to outline some details of his plan in a 20-minute interview on French television. But whether that will silence growing doubts about the ability of Mr. Hollande and his team to tackle a raft of problems is unclear. In a rare coincidence, the newspapers Le Monde and Le Figaro on Friday took note of the extraordinary “Hollande-bashing” on both the left and right of French politics and media.	“This will be the biggest effort in 30 years,” he said. On Sunday, he is expected to outline some details of his plan in a 20-minute interview on French television. But whether that will silence growing doubts about the ability of Mr. Hollande and his team to tackle a raft of problems is unclear. In a rare coincidence, the newspapers Le Monde and Le Figaro on Friday took note of the extraordinary “Hollande-bashing” on both the left and right of French politics and media.
The risks are not merely political. If spending cuts led to a weaker economy, the resulting decline in tax revenue could make the budget-cutting task that much harder. The French government has said the deficit-reduction target could rise to as high as €44 billion if the economy expands only 0.5 percent next year, as many economists now predict, instead of the 1.2 percent forecast.	The risks are not merely political. If spending cuts led to a weaker economy, the resulting decline in tax revenue could make the budget-cutting task that much harder. The French government has said the deficit-reduction target could rise to as high as €44 billion if the economy expands only 0.5 percent next year, as many economists now predict, instead of the 1.2 percent forecast.
“This is the story seen in every European country facing fiscal adjustment,” said Évariste Lefeuvre, an economist in New York for the French bank Natixis. “You work to get your deficits down, and you think it will be done. But then growth slows, and you find that actually you need to do much more.”	“This is the story seen in every European country facing fiscal adjustment,” said Évariste Lefeuvre, an economist in New York for the French bank Natixis. “You work to get your deficits down, and you think it will be done. But then growth slows, and you find that actually you need to do much more.”
The problem is by no means as daunting as that facing the shaky coalition government in Greece, where public tensions have reignited at the prospect of further cutbacks in the teeth of a five-year recession and 23 percent unemployment.	The problem is by no means as daunting as that facing the shaky coalition government in Greece, where public tensions have reignited at the prospect of further cutbacks in the teeth of a five-year recession and 23 percent unemployment.
But the challenges are nonetheless formidable for Mr. Hollande, who presides over a country where government expenditures are more than 56 percent of gross domestic product, one of the highest ratios in the euro zone.	But the challenges are nonetheless formidable for Mr. Hollande, who presides over a country where government expenditures are more than 56 percent of gross domestic product, one of the highest ratios in the euro zone.
He has insisted that the budget cutting will done in a “prudent” and “honest” way that will not hurt the economy or break his pledge to shield the French people from austerity. Indeed, the A-word has hardly been uttered in public discourse except by the prime minister, Jean-Marc Ayrault, who declared recently that he would not be “the prime minister of a turn to austerity.”	He has insisted that the budget cutting will done in a “prudent” and “honest” way that will not hurt the economy or break his pledge to shield the French people from austerity. Indeed, the A-word has hardly been uttered in public discourse except by the prime minister, Jean-Marc Ayrault, who declared recently that he would not be “the prime minister of a turn to austerity.”
To give Mr. Hollande eventual cover for taking painful measures against middle-class benefits, his initial focus has been on tax increases aimed mainly at companies and the rich.	To give Mr. Hollande eventual cover for taking painful measures against middle-class benefits, his initial focus has been on tax increases aimed mainly at companies and the rich.
The government has already identified around €7 billion worth of savings aimed at getting the deficit, now at 5.2 percent, down to 4.5 percent by the end of this year. Most of it would come through the closure of perhaps 500 tax loopholes, as well as other changes to tax policy, like an increase in the tax on dividends and stock options.	The government has already identified around €7 billion worth of savings aimed at getting the deficit, now at 5.2 percent, down to 4.5 percent by the end of this year. Most of it would come through the closure of perhaps 500 tax loopholes, as well as other changes to tax policy, like an increase in the tax on dividends and stock options.
As such, more than 70 percent of those tax increases would fall on households with the most wealth.	As such, more than 70 percent of those tax increases would fall on households with the most wealth.
To cut the deficit next year to 3 percent — the level required for members of the euro monetary union — more tax increases will be proposed, including a 75 percent marginal income tax on income above €1 million, and a “social tax” on a wide variety of income that would be used to help pay for France’s extensive health care system.	To cut the deficit next year to 3 percent — the level required for members of the euro monetary union — more tax increases will be proposed, including a 75 percent marginal income tax on income above €1 million, and a “social tax” on a wide variety of income that would be used to help pay for France’s extensive health care system.
The government has rejected imposing a value-added tax on things like food products proposed by Mr. Hollande’s predecessor, Nicolas Sarkozy, saying the hit to those at the margins of society — who spend most of their money on consumables — would be too large.	The government has rejected imposing a value-added tax on things like food products proposed by Mr. Hollande’s predecessor, Nicolas Sarkozy, saying the hit to those at the margins of society — who spend most of their money on consumables — would be too large.
But the hit to economic growth could be significant, said Mr. Lefeuvre of Natixis.	But the hit to economic growth could be significant, said Mr. Lefeuvre of Natixis.
His bank forecasts growth next year of 0.7 percent, and a deficit that would decline to 3.8 percent of G.D.P. if nothing is done. But with the budget cuts that might be necessary for Mr. Hollande to hit his targets, there might be zero growth next year, while the deficit would dip to 3.5 percent, the bank forecasts.	His bank forecasts growth next year of 0.7 percent, and a deficit that would decline to 3.8 percent of G.D.P. if nothing is done. But with the budget cuts that might be necessary for Mr. Hollande to hit his targets, there might be zero growth next year, while the deficit would dip to 3.5 percent, the bank forecasts.
Just where the biggest cuts might come is still unclear, which is why the details are so anxiously awaited.	Just where the biggest cuts might come is still unclear, which is why the details are so anxiously awaited.
So far, Mr. Hollande is sticking with promises to create up to 60,000 new teaching jobs without enlarging the public payroll, and is refraining from touching the €65 billion education budget, one of the largest areas of government spending. Layoffs in police and justice services have been mostly ruled out.	So far, Mr. Hollande is sticking with promises to create up to 60,000 new teaching jobs without enlarging the public payroll, and is refraining from touching the €65 billion education budget, one of the largest areas of government spending. Layoffs in police and justice services have been mostly ruled out.
Aside from possible reductions to the budgets of other areas of government, like Culture Ministry projects including the regular cleaning of historic monuments, it remains to be seen where other, more painful cuts may come.	Aside from possible reductions to the budgets of other areas of government, like Culture Ministry projects including the regular cleaning of historic monuments, it remains to be seen where other, more painful cuts may come.
With unemployment at a 10-year high of 10 percent, Mr. Hollande must do all of this in a way that does not harm the competitiveness of the economy in France, a country that already has a reputation as a costly place to do business. Critics say he needs to negotiate more strongly with French unions, for instance, to try reducing labor costs in a way that would make France a more attractive destination for business investment.	With unemployment at a 10-year high of 10 percent, Mr. Hollande must do all of this in a way that does not harm the competitiveness of the economy in France, a country that already has a reputation as a costly place to do business. Critics say he needs to negotiate more strongly with French unions, for instance, to try reducing labor costs in a way that would make France a more attractive destination for business investment.
But the finance minister, Pierre Moscovici, recently poured cold water on the notion of labor moves, saying the government would focus instead on investing in innovation and research and other ways of financing the economy. “The question of labor costs is not the alpha and omega of what needs to be done,” he said in a recent interview with the French business newspaper Les Échos.	But the finance minister, Pierre Moscovici, recently poured cold water on the notion of labor moves, saying the government would focus instead on investing in innovation and research and other ways of financing the economy. “The question of labor costs is not the alpha and omega of what needs to be done,” he said in a recent interview with the French business newspaper Les Échos.
Mr. Moscovici added that there was no question that France would barrel down on improving its fiscal targets, even if growth slows. “When the debt is at 90 percent of gross domestic product, that is penalizing for growth,” he said. “Reducing the debt is therefore a priority.”	Mr. Moscovici added that there was no question that France would barrel down on improving its fiscal targets, even if growth slows. “When the debt is at 90 percent of gross domestic product, that is penalizing for growth,” he said. “Reducing the debt is therefore a priority.”