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 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 66.


    Bet it looks different if you read the French translation! :-)

    It might, for I have noticed that, e.g., Ahmadinnerjacket's speeches sound much better after his minions translate them into English.

    [suddenly phrases like "Israel should be wiped off of the world map", etc., are changed into something much more civilized&reasonable :-) ]

  • rate this

    Comment number 176.

    The problem w/ these European countries doing austerity is that they have not diagnosed the root cause+
    they are treating the symptoms but not the problem itself

    The problem is the Euro

    If Europe didn't have the Euro
    they would not be in Euro Crisis

    Europeans can do austerity all they want which is treating symptoms
    but until they address the Euro, they are not solving the problem

  • rate this

    Comment number 79.

    Re #68

    No, Comrade Ogilvy.

    Ahmdinnerjacket (btw. merely Ayatollah Ali Khamenei's factotum)
    spoke, REPEATEDLY, about "Zionist Entity".

    Btw. very recently he said "Jews" (no ambiguity there) "have no reason of being in the Middle East".

    I guess. prof. [sic] Ahmadinnerjacket is questioning ancient Greek&Roman records, let alone not knowing how regions such as JUDEA got their names. :-)

  • 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.


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