France budget: Hollande's grim choices

President Francois Hollande - file pic President Hollande's support has slumped since he came to power in May this year, polls suggest

France is committed to reducing its deficit next year to 3%. If it backtracks it fears the markets would force up its borrowing costs, in the way they have done with Spain and Italy.

France needs to save around 30bn euros (£24bn; $37bn). Only a third of that will come from spending cuts. Taxes on the rich will raise 10% and a similar amount will come from businesses. There is the expectation that capital gains, interest and dividends will be taxed as regular income.

The 2-3,000 people who earn over 1m euros will see their income tax rise to 75%. Already some of the ambitious and well-off French people have trudged to London and Brussels in pursuit of lower taxes. The government has denounced them as unpatriotic and pretends not to care. This budget, said a government minister, would spare the middle and working class, which is where the votes lie.

This budget is a political test for President Francois Hollande. Can he reduce public spending? Which cuts will he choose to make to save 10bn euros? Mr Hollande is a president with little room to manoeuvre. His supporters in the unions are watching closely.

He came to power criticising the policy of austerity first. Growth would be the priority. His first months in office have born that out. There has been no growth for three quarters. France is stagnating. Although the goverment has increased public spending that has been offset by a decline in household spending. The consumer lacks confidence. Unemployment has risen above three million and the president's approval ratings are falling.

One major test of the government's commitment to growth is the country's labour laws. It is notoriously difficult to take on new workers and replace them. Nothing would, over time, boost growth and employment more than a radical overhaul of France's employment laws. But will the government take on its natural supporters and insist change must come?

The French goverment will move cautiously. It will have noticed that elsewhere in Europe the years of austerity are bringing protesters to the streets. On Sunday in Paris there is a demonstration against the EU fiscal pact that sets strict limits on deficits.

It is frequently said by European officials and some leaders that what the EU needs is "more Europe". What this week of budgets and protests has revealed is that what the people want is a Europe that delivers.

France does not want to be Italy. France does not want to be Spain. That is the motive behind today's French budget, according to the prime minister. The relatively new French government hates the very word "austerity", but it too will have to unveil some spending cuts.

Gavin Hewitt, Europe editor Article written by Gavin Hewitt Gavin Hewitt Europe editor

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  • rate this

    Comment number 110.

    Just Spanish banks alone need 60 BILLION euros to survive.

    Spain itself requires a 700 billion euro bailout.

    While Italy - 2 TRILLION.

    Question I have been asking for over a year but still can't get an aswer to:


    [Certainly not from IMF, China, let alone Russia]

  • rate this

    Comment number 109.

    Pavlov dogs, like the Eurocrats with their, crises what crises, until nobody believes them anymore. Excellent analogy.
    Nice article in the Guardian also mentions, the only reason we still have our AAA and low cost borrowing is because we stayed out of the Euro.

  • rate this

    Comment number 108.


    I'm sure you've heard about Pavlov's dogs. Those which eventually learned there's no point foaming at their mouth if they're not going to get any food, but instead can only get a kick in the nose.

    Unfortunately, not all specimens are as smart as those dogs.

    [even if they are quite old in the tooth]

    Sapienti sat.

  • rate this

    Comment number 107.

    A Spanish economic professor in an article today, with Spain's interest payment going up from 9billion this year. To 36 billion next year, they will be lucky if the deficit is 8% this year. The Spanish economy will shrink by 5% this year so tax receipts are spiraling down.
    You're behind a curve. Concentrate on ITALY now (2 TRILLION bailout needed). France being next.

  • rate this

    Comment number 106.

    QOT, I read the Guardian economy blog, the Telegraph economy blog and the business section of Reuters UK.
    Read for yourself

  • rate this

    Comment number 105.

    What is missing from the discussion is the size of France's contingent liabilities. Those will become a big problem for France in the near future. But France hopes they can hold out until 'liabilities union' so they can get other countries to bail out the soon to be bankrupt French welfare system.

    There's a big difference between what is France's official debt and what is their real debt.

  • rate this

    Comment number 104.

    "Hollande & co came in without a clue about the crisis"

    Common, frenchderek, those people came in opposing defict reductions and trying to stimulate economy through taxpayers-funded schemes only increasing state deficit.
    (just like Obama has been doing in the US)

    Its Hayek&Friedman versus discredited Keynes/Galbraith approach.

    [sorry; forgot to mention Karl Marx and V. I. Lenin]

  • rate this

    Comment number 103.

    "Democracy is that form of government where the people get what they ask for--and they get it good and hard." Will Rogers

    Who does Mr. Hollande ask for a bailout when his policies don't work?

  • rate this

    Comment number 102.

    'European officials' say that 'more Europe' is needed. Exactly the kind of Pavlovian response you'd expect from them.

    But what is needed is decidedly 'less Europe'. Undo the EU, revert back to EEC and economic cooperation and a free- or fair-trade zone, that's all we need. All this political integration is undemocratic and the Euro is destroying wealth (except for the rich, who got richer).

  • rate this

    Comment number 101.

    #96 dmr

    --can´t you give sources (links) ?

    --you are afraid of replies ?

  • rate this

    Comment number 100.

    Re Italian Communist not being totalitarians...

    Do you mean terrorists from Red Brigades?

    And re another post from Italy re "shining path".

    Did you mean Sendero Luminoso (Shining Path), a narco-Commie thugs' outfit terrorizing Peru?

    Please, clarify.

  • rate this

    Comment number 99.


    Interesting, but when you say 'Sweden is one such nation', what have the politicians and bureau/eurocrats there done to give themselves a dose of austerity? I see plenty of ordinary people taking hits, plenty of companies taking hits, but nothing much regarding 'sacrifice' on the part of the political elites.

  • rate this

    Comment number 98.

    The French budget is anti-jobs and anti-growth.
    Anyone middle/lower class with a job will be hit: higher social charges and the second freezing of tax rates/levels in a row. Plus the TV licence going up; and, if you've got savings, they'll take a hit. If you're in business in France, maybe you soon won't be (nor your employees).

    Hollande & co came in without a clue about the crisis. It's showing.

  • rate this

    Comment number 97.

    "The 2-3,000 people who earn over 1m euros will see their income tax rise to 75%. Already some of the ambitious and well-off French people have trudged to London and Brussels in pursuit of lower taxes."

    EUp: He should tax something which they cannot move so easily which is property.

    My very limited experience of billionaires is that they have loads of properties, some of which get used 2 wks/pa

  • rate this

    Comment number 96.

    A Spanish economic professor in an article today, with Spain's interest payment going up from 9billion this year. To 36 billion next year, they will be lucky if the deficit is 8% this year. The Spanish economy will shrink by 5% this year so tax receipts are spiraling down.
    With Spain rushing the way of Greece, when will they put the failed Euro experiment to rest.

  • Comment number 95.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 94.


    "...Maintaining a bloated state sector..."


    You mean like, the private sector, in, say banking, ain't "bloated"?

  • rate this

    Comment number 93.

    CO & AfA
    Here's what Keynes had to say about Gesell.
    "I believe that the future will learn more from the spirit of Gesell than from that of Marx."
    Here's a link to the whole idea.
    It's very slow loading on my PC, Part V chapter 1 'The story of Robinson Crusoe', is a great parable, has a go at Marx though, sorry CO.

  • rate this

    Comment number 92.

    #85 pmk

    "WHOM GOD WANTS TO PUNISH HE FIRST DEPRIVES OF REASON." -- thanks for explaining -- we can now sympathize with you.

    Fine, exccept, who is 'we'? (pluralis maiestatis?), and who is 'you'?

    Please, clarify [if you can still see your keyboard, that is].

    P.S. Still waiting for your list of TOP TEN Western countries with the highest unemployment&interest they have to pay.

  • rate this

    Comment number 91.

    #90 Eddy

    --and Churchill


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