09 September 2012

WSJ: France's Hollande outlines austerity goals

Mr Hollande said he has given himself two years to turn around France's economy and acknowledged the gravity of that task. He said the country's growth prospects have clearly deteriorated and significantly downgraded the growth forecasts to "barely above zero" for this year and "about 0.8 per cent" for 2013.

"I'm not going to do in four months what my predecessors haven't done in five or 10 years", said Mr Hollande. "I am in combat mode." He said he was "accelerating things". Mr Hollande said his government would propose a budget this month packed with as much as €20 billion in new taxes and €10 billion in spending cuts. He confirmed that the budget will include a special 75 per cent tax for people earning more than €1 million a year that has fanned fears of an exodus of France's wealthiest citizens. The painful measures are necessary to fulfil pledges to lower the country's budget deficit to 3 per cent of gross domestic product next year from 4.5 per cent in 2012 and reassure investors, who have been more lenient with France than with other highly indebted eurozone countries such as Italy and Spain.

Mr Hollande put pressure on unions and businesses to agree on wide-ranging overhauls of the country's labour market by the end of the year, adding that otherwise, the government would intervene. The goal, he said, is to boost job protection for workers and at the same time allow companies to better adapt to the highs and lows of the economic cycle.

Mr Hollande has delivered on some his key campaign promises as he sought to satisfy his core base. In July, he toughened the wealth tax on rich taxpayers and scrapped some fiscal advantages for large inheritances. But the moves haven't been without controversy, with French companies warning that the country's high tax structure is hampering their ability to recruit and potentially sparking an exodus of the country's rich.

Full article

© Wall Street Journal