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France Produces ‘No Austerity’ Budget, Defying E.U. Rules France Produces a ‘No Austerity’ Budget, Defying E.U. Rules
(about 3 hours later)
PARIS — France intensified a showdown with its European Union partners on Wednesday by unveiling a “no austerity” budget that aims to bring its deficit within European guidelines two years later than previously promised. Moving any faster to satisfy the bloc’s budget rules, the government said, would weaken the country’s already feeble economy. PARIS — France declared independence from the European Union’s austerity-budget regime on Wednesday. But a sharp political reaction at home made clear how difficult it may be for President François Hollande to lead the nation’s flagging economy back to steady growth.
“No further effort will be demanded of the French, because the government — while taking the fiscal responsibility needed to put the country on the right track — rejects austerity,” the government said in a statement accompanying the budget. Under pressure from the European Union to mend its finances, officials in Mr. Hollande’s cabinet presented a budget blueprint designed to cut 50 billion euros, or $63 billion, in domestic spending over three years. But they refused to implement the cuts any faster than that, warning that doing so would endanger the country’s feeble economy.
The announcements amounted to a new challenge of Germany and the austerity movement at a time when France’s new economy minister, Emmanuel Macron, has admitted that the eurozone’s second-largest economy after Germany’s is “sick.” “No further effort will be demanded of the French, because the government — while taking the fiscal responsibility needed to put the country on the right track — rejects austerity,” the government said in a statement.
The French budget detailed 50 billion euros, or about $63 billion, in spending cuts to be made over the next three years, which President François Hollande’s critics say does amount to an austerity plan. But as Mr. Hollande tries to walk a fine line between promoting economic growth and appeasing European officials who want countries to reduce deficits, less than half of those cuts will be unrolled in the next year. The move threatens to intensify a showdown between Paris and its main eurozone partners — particularly Germany, where some officials have expressed concern that France is seeking exceptional treatment under European Union rules, even as other crisis-hit countries, like Spain and Ireland, manage to improve their finances.
France is demanding leniency from Brussels to meet European Union deficit targets in a bid to avoid slipping into an outright recession, after Paris already missed two deadlines in the last three years. At the same time, Mr. Hollande’s critics within France accused him of imposing too much austerity in the budget, which calls for deep cuts in health care, family subsidies, government payrolls and local and national spending.
“We have taken the decision to adapt the pace of deficit reduction to the economic situation of the country,” Finance Minister Michel Sapin said. Leftist members of his own Socialist Party accused Mr. Hollande of undermining France’s vaunted social welfare model. Meanwhile, a former conservative prime minister, François Fillon, warned that France risked a “serious financial accident” if it did not mend its economy.
Any additional stagnation or slowdown in the French economy could weigh on a European recovery, which has been alarmingly slow in the wake of the Continent’s lengthy debt crisis. Mr. Hollande, who already has the lowest popularity ratings of any modern French president, is trying to walk a fine line between promoting economic growth and appeasing European officials who want countries to reduce their deficits. In a bid to keep the French economy from sliding into outright recession, less than half of the 50 billion euros in cuts would be unrolled in the next year.
Growth in the 18 countries that share the euro ground to a halt in the last quarter, and the region's unemployment rate remains stuck at 11.5 percent. By contrast, the American economy appears to be recovering from one of its worst downturns since the 1930s, and unemployment has declined to around 6 percent from about 10 percent at its recent peak. Nonetheless, on Tuesday, the day before the budget was presented, nearly all pharmacies and notary agencies in France were shuttered, and thousands of employees took to the streets to protest changes that also included plans to open various sectors of the economy to greater competition. Parents and school officials called for major rallies across France this weekend to protest 700 million euros in planned cuts in family benefits and €3.2 billion in health spending cuts.
On Wednesday, Mr. Sapin warned that France would continue to suffer from slow growth for at least the next three years, with the economy expanding 0.4 percent this year before reaching a 2 percent pace only in 2019. But a few hours later, even those forecasts were attacked by the French High Council of Public Finances as being too optimistic. The announcements amounted to a fresh rebuke to Germany and the austerity movement at a time when the new French economy minister, Emmanuel Macron, has acknowledged that France’s economy, the eurozone’s second-largest, after Germany’s, is “sick.”
France is effectively arguing that circumstances justify flouting the eurozone budget rules that it, together with Germany, played a critical role in shaping during the creation of the currency union some 15 years ago. Continued stagnation or a further slowdown in the French economy could weigh on a European recovery, which has been alarmingly slow after the Continent’s lengthy debt crisis. On Tuesday, Italy warned that its economy, the eurozone’s third largest, was heading into a third straight year of recession and would be unable to meet its deficit target before 2017.
But with growth weak across the eurozone, France is hardly alone: Last year, Ireland, Spain, Greece and Britain were among those that also failed to comply with the bloc’s requirement that budget deficits not exceed 3 percent of gross domestic product. Growth in the 18 countries that share the euro currency ground to a halt in the last quarter, and the region’s unemployment rate remained stuck at 11.5 percent. By contrast, the American economy appears to be recovering from one of its worst downturns since the 1930s, and unemployment has declined to around 6 percent from about 10 percent during the trough of the more recent financial crisis.
Mr. Sapin said France’s deficit would be around 4.3 percent of G.D.P. in 2015. Not until 2017 will it fall below the 3 percent threshold set by the European Union, he said. On Wednesday, Michel Sapin, the French finance minister, warned that the country would continue to experience slow growth for at least the next three years, with the economy expanding by just 0.4 percent this year before reaching a 2 percent pace only in 2019.
France’s budget deficit has not been within that 3 percent threshold in a decade. What is more, Paris said this week that government debt would top €2 trillion for the first time, representing 95 percent of G.D.P., well above the 60 percent level called for by the European Union. A few hours later, though, even that gloomy forecast was attacked by the French High Council of Public Finances as being too optimistic.
It is unclear whether the European Commission, which oversees the national budgets of the 28 member states of the European Union, will see France’s appeal in a favorable light. The commission is expected to render a verdict this month on France’s blueprint. If France is found to be in breach of the rules, it could face sanctions, including stiff fines, but little more. France is effectively arguing that circumstances justify flouting the eurozone budget rules that it, together with Germany, played a critical role in shaping during the creation of the currency union a decade and a half ago. France is demanding more leniency from Brussels to meet European Union deficit targets, having already missed two deadlines in the past three years.
Chancellor Angela Merkel of Germany told Prime Minister Manuel Valls last month in Berlin that France had made “very ambitious” plans to rein in public spending, which, at 56 percent of G.D.P., is among the highest in eurozone. Still, she said France needed bolder changes to the way its economy functions in order to generate growth and jobs. “We have taken the decision to adapt the pace of deficit reduction to the economic situation of the country,” Mr. Sapin said Wednesday.
Germany has encouraged austerity in other countries, including Ireland, Greece, Spain and Portugal, as a way to keep the euro debt crisis at bay. But many economists believe that crimping spending during a downturn helped slow economic growth, which in turn made it harder for those countries to reduce deficits and debts. With growth weak across Europe, France is hardly alone: Last year, Ireland, Spain and Greece were among those countries that also failed to comply with the bloc’s requirement that budget deficits not exceed 3 percent of gross domestic product.
Each of those nations also pledged to carry out so-called structural reforms intended to stoke growth and hiring, including easing rules for hiring and firing workers and opening up protected professions to greater competition. But France has not been under the 3 percent cap in a decade. Mr. Sapin said France’s deficit would be around 4.3 percent of G.D.P. in 2015. Lowering the deficit faster would require the bulk of the spending cuts to come sooner.
This week, Mr. Hollande took bigger steps in that direction with his budget, which detailed the €50 billion in spending cuts over the next three years. They include €21 billion in cuts for 2015 that would slash about €9.6 billion from the French welfare state, €7.7 billion from other government spending, and €3.7 billion in spending cuts for municipalities. Because the cuts are being spread over three years, the deficit will not fall below the 3 percent threshold set by the European Union until 2017, Mr. Sapin said.
The cuts are partly aimed at offsetting €40 billion in tax breaks that Mr. Hollande promised businesses as part of a so-called “responsibility pact,” in which companies will pledge to hire more workers in an effort to reduce a jobless rate that remains stuck around 10 percent. What is more, Paris said this week that government debt would top €2 trillion for the first time. That represents 95 percent of G.D.P., well above the 60 percent level called for by the European Union.
This week, the government also unveiled plans to open protected sectors of the economy, including pharmacies and the lucrative notary business, to competition in a bid to generate jobs. It is unclear whether the European Commission, the administrative branch that oversees the national budgets of the European Union’s 28 member states, will see France’s appeal in a favorable light.
But those measure have already prompted a heated political and social backlash. On Tuesday, nearly all pharmacies and notary agencies in France shuttered, with thousands of employees taking to the streets to protest the changes. The commission is expected to render a verdict this month on the French budget plan. If France is found to be in breach of the rules, it could face sanctions and fines.
Parents and school officials also intend to hold major rallies across France this weekend to protest €700 million in planned cuts in family benefits and €3.2 billion in health spending cuts. Chancellor Angela Merkel of Germany told Prime Minister Manuel Valls of France last month in Berlin that his country had made “very ambitious” plans to rein in public spending, which, at 56 percent of G.D.P., is among the highest in eurozone.
The proposed cuts deepened a schism within Mr. Hollande’s Socialist Party, with members of the party’s left wing expressing outrage that the president appeared to be pulling away from France’s vaunted social welfare model. Still, she said, France needed bolder changes to the way its economy functions in order to generate growth and jobs.
On Tuesday, Mr. Hollande delivered a stern warning to the nation. Hours after France’s announcement on Wednesday, a German business group issued a more pointed assessment.
“There is no savings plan that is painless,” he said in a speech to business leaders at the Élysée Palace. “If that country doesn’t figure a way out of the downward spiral, the euro and Europe are at risk,” Anton Börner, the president of BGA, Germany’s largest exporters association, said in a speech in Berlin.
Germany has encouraged austerity in other countries, including Ireland, Greece, Spain and Portugal, as a way to keep the euro debt crisis at bay. But many economists believe that crimping spending during a downturn has impeded economic growth, which in turn has made it harder for those countries to reduce their deficits and debts.
Each of those nations also pledged to carry out so-called structural reforms — economic changes intended to stoke growth and employment, including the easing of rules for hiring and firing workers and opening up protected professions to greater competition.
Mr. Hollande intends to take bigger steps in that direction with his new budget, which in 2015 would slash about €9.6 billion from the French welfare state, €7.7 billion from other government spending, and €3.7 billion in spending cuts for municipalities.
The cuts are partly aimed at offsetting 40 billion euros in tax breaks that Mr. Hollande promised business as part of a so-called responsibility pact, in which companies will pledge to hire more workers in an effort to reduce a national unemployment rate that remains stuck at around 10 percent.
On Tuesday, in a speech to business leaders at the Élysée Palace, Mr. Hollande delivered a stern warning to the nation. “There is no savings plan that is painless,” he said.
To control France’s debt and deficit, “we must make savings,” he said. “If you don’t hear screaming, that means we aren’t saving.”To control France’s debt and deficit, “we must make savings,” he said. “If you don’t hear screaming, that means we aren’t saving.”