New French PM presents policy, country expects austerity

Didier Migaud (L), President of the French Court of Auditors (Cour des Comptes), speaks with France's Prime Minister Jean-Marc Ayrault during a meeting to release in-depth report on French public finances at the Hotel Matignon in Paris July 2, 2012. REUTERS/Piotr Snuss

PARIS: French Prime Minister Jean-Marc Ayrault faces a baptism by fire on Tuesday when he outlines his new government's agenda, squeezed between promises to voters, to EU authorities and by an audit warning.

In Europe, the eurozone crisis still burns and at home his finance minister has just warned that economic growth will be lower than forecast.

The new Socialist government under President Francois Hollande, whose poll mantra had been growth over belt-tightening, could be forced to review some pledges as it needs to tighten budgets this year and next by up to 43 billion euros.

The state auditor, which warned that the budget must be adjusted by up to 10 billion euros this year and by 33 billion euros ($41.7 billion) next year, raised prospects that sweeping cuts -- and deeper than expected -- are now inevitable.

The Les Echo financial daily's top headline on Tuesday was "France condemned to unprecedented austerity."

The newspaper foresaw that salary freezes, cuts in public sector current spending, and a review of grand infrastructure projects were in the pipeline. It said that the construction of high-speed rail networks could be cut back to help cut the public deficit.

"Who will pay?" the left-leaning Liberation newspaper asked, underscoring the government's "historic responsibility to take charge of France's financial recovery."

France is set to revise growth forecasts for this year to 0.4 percent from 0.5 percent and for next year to 1.3 percent from 1.7 percent.

During his election campaign, Hollande pledged to reduce public debt based on the earlier, more optimistic, forecasts.

But already the right-wing opposition is attacking the Ayrault government for reintroducing the austerity approach which the Socialists had strongly attacked when they were on the opposition benches.

Paris has promised its EU partners to reduce the public deficit from 5.2 percent of output in 2011 to 4.5 percent at the end of this year.

Prime Minister Ayrault has already ordered ministries to slash spending by seven percent next year and said some public sector jobs will be cut.

After his hour-long speech before the National Assembly, the proposals will be put to vote, a mere formality as the government has a comfortable majority in the house.

The government will then announce budget adjustments on Wednesday.

Budget Minister Jerome Cahuzac, contradicting a suggestion in the audit report, has said there would be no increase in value-added sales tax (VAT) in the revised budget for 2012.

He added: "As the president and prime minister have said, next year there will be no increase in state spending even with inflation factored in."

Hollande had pledged to create new jobs, impose a stinging 75-percent tax on income of more than one million euros and has already committed the government to raising the minimum wage by 2.0 percent.

The audit office said that for 2013, on the basis of a commitment of reducing the deficit to the EU ceiling of 3.0 percent of gross domestic product, widely-based taxes such as VAT sales tax or the complementary social CSG tax, would have to be raised, at least temporarily.

The auditors also found that surprises from unexpected spending on commitments made by the last centre-right government were limited, totalling 1.2-2.0 billion euros.





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