FRANCE - BUDGET

Don’t call it an austerity plan!

Friday 04 April 2008

It's a taboo word in France's corridors of power. But will "revisions" - as opposed to "austerity" measures, enable President Nicolas Sarkozy to shave 5 billion euros from public expenses by 2011?

It would be hard to come up with a more mind-numbing moniker for a state spending reform: “The General Revision of Public Finances”.
 
But for French President Nicolas Sarkozy and his acolytes, that’s far preferable to calling Friday’s 140-step cost-cutting blueprint (the second phase of a broader three-stage overhaul) an “austerity plan”.
 
“Austerity” is a taboo word in Paris’s corridors of power these days.
 
Sarkozy’s ministers, spearheaded by his staunchly loyalist PM, François Fillon, have gone to great lengths to avoid using the term.
 
The latest reforms, they say, are about “rationalising” existing structures: doing more with less, thanks to greater efficiencies.
 
The ultimate objective is to shave 5 billion euros - net - from public expenses by 2011 by streamlining the way the state functions in areas ranging from housing and health to foreign diplomacy and warfare.
 
But why this reform - and why now?
 
Well, it’s hardly a secret that where its budgetary promises to the EU are concerned, France has not stuck to its guns.
 
Back when he was campaigning for president, Sarkozy dangled the promise that France would balance its budget by 2010 – only to see that deadline nudged back in recent months to 2012.
 
In the interim, the economic picture has darkened: France’s public deficit now officially stands at 2.7% - a shave above the 2.4% that Fillon had initially announced. (The EU can start applying sanctions once a member’s public deficit balloons past 3%.)
 
Meanwhile, the public debt is some 1.2 trillion euros - or more than 64% of GDP. That means it’s already overshot the EU ceiling of 60%.
 
Add to that an anemic growth rate, exacerbated by a slowing US economy. The French national statistics office forecasts 1.4% growth this year. Not exactly inspiring stuff for a president who has pinned his hopes for taming deficits on robust growth of around 2.5%, spurred in part by his own reform agenda.
 
The latest overhaul of public finances is inspired by similar reforms undertaken by Sweden and Canada.
 
It hinges on bureaucratic downsizing, which, this being France, means first and foremost, slimming down a bloated bureaucracy.
 
Sarkozy says one out of two retiring civil servants will not be replaced, starting in 2009. That means the posts of 35,000 retiring fonctionnaires will disappear from the bureaucratic log books.
 
As for housing, one headline reform would see the eligibility ceiling for access to affordable social housing lowered by some 10%. At present, some 72% of the French population is eligible for such housing allowances. This would drop to around 60%.
 
Foreign embassies could also see a shake-up - with France sharing some functions and personnel in certain countries with partners such as Germany, and possibly Spain or Italy.
 
Finally, we are likely to see around 48,000 cuts in the Army - so-called "back-office" jobs in non-combat support units.
 
But even with these reforms, lots of other economic chips will have to fall into place for a balanced budget to become reality by the pushed-back deadline of 2012.