France needs spending cut, retain ‘credibility’

PARIS - Agence France-Presse

French Finance Minister Pierre Moscovici (R), flanked by Budget Minister Jerome Cahuzac, speaks during a press conference at the Economy Ministry in Paris. AFP photo

France needs an extra 6 billion euros in revenues next year, the budget minister said and the European Central Bank said it had to act fast to cut spending and retain credibility after slashing the 2013 growth forecast.

The French government recently acknowledged that its forecast for 0.8-percent growth this year was out of reach, meaning its budget planning to reach the European Union deficit ceiling of 3 percent of output was no longer sufficient.

Budget Minister Jerome Cahuzac told the private Europe 1 radio station that France’s “budgetary situation is such that we have to find six billion euros in extra receipts.” But he did not specify how this would be achieved saying taxes “are already very high in France.” Separately, Finance Minister Pierre Moscovici said “in 2014, with a delay of one year, we must achieve three percent.” Speaking to journalists during a visit to London, Moscovici said “the 2014 budget must drafted this way.” French ministries have been informed how much to cut spending in order for the government to generate 2 billion euros ($2.6 billion) in savings this year.

“Economies in public spending are inevitable,” Cahuzac said. “We have started to do it, we will continue to do it,” he added.

Benoit Coeure, a Frenchman who sits on the managing board of the European Central Bank, said on Feb. 25 that Paris had to take strong action to convince its European Union partners that it was serious about keeping to the EU’s deficit norms.

Hollande rejects austerity

French President Francois Hollande has rejected undertaking massive additional austerity measures, however, arguing they would only slow growth and further aggravate the country’s finances.

“As for credibility on the short-term, France must absolutely respect its commitment to cut the structural deficit,” Coeure told financial daily Les Echos.

“On the medium-term it has to take quick and concrete decisions to achieve spending cuts so that France reassures its European partners,” he said.

Coeure said that slashing expenditure was the best way out for France.

The head of the Bundesbank, Jens Weidmann, also urged France to keep cutting the deficit, although he acknowledged it is difficult when in a context of weak growth.

However Weidmann, who sits on the ECB’s rate-setting Governing Council, said that Europe finds itself in a situation where markets have little credibility in its budgetary rules.

In such a context “it is particularly important that eurozone heavyweights send clear signals that boost the credibility of budgetary rules and the agreements at the heart of the economic and monetary union.