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France

French government to unveil tough austerity measures

Video by Lorna SHADDICK

Text by News Wires

Latest update : 2011-08-24

The French government is due to announce on Wednesday a series of spending cuts and tax hikes totalling some €14 billion over two years, in a bid to reduce the country’s public deficit after growth stalled in the second quarter of 2011.

AFP - The French government was set to unveil on Wednesday measures to achieve billions of euros in fiscal savings as it struggles to adhere to its deficit cutting targets and keep markets at bay.         

Prime Minister Francois Fillon was expected to announce at 1600 GMT a mix of spending cuts and tax hikes to save roughly 14 billion euros ($20 billion) over two years.
             
French President Nicolas Sarkozy ordered the government come up with the measures two weeks ago as rumours, eventually denied, swirled that ratings agencies were about to strip France of its top triple-A credit rating.
             
The additional measures have become even more necessary after data showed France's economic growth stalled in the second quarter, after expanding at a robust 0.9 percent in the first quarter.
             
France's public deficit targets -- the shortfall between government spending and revenue -- are based on a forecast of 2.0 percent growth this year, but analysts say that the goal is now too optimistic.
             
France aims to trim its public deficit to 5.7 percent this year, 4.6 percent next year and reach the EU's theoretical maximum limit of 3.0 percent in 2013.
             
The prospect of slow growth has intensified investors concerns about unsustainable debt and deficit levels in the eurozone.
             
Italy and Spain saw their borrowing costs spike as investors sold off their holdings, forcing the European Central Bank to intervene in the markets to prevent them being forced into a debt spiral and follow Greece, Ireland and Portugal into bailouts.
             
While the French government has so far refused to lower its forecasts of 2.0 percent growth this year and 2.25 percent in 2012, analysts are looking for Fillon to possibly announce a downward revision or the government to do so when presenting its 2012 budget proposals next month.
             
Officials have refused to confirm in advance any of the measures to be taken as negotiations were due to continue down to the wire.
             
However, the government was widely expected to impose a special tax on the super rich, although the specifics were unclear.
             
The government was also expected to aim at eliminating or reducing many tax breaks, and increase taxes on big companies.
             
While spending cuts and tax hikes come at a sensitive time politically, ahead of presidential and parliamentary elections next year, a poll released Tuesday found the French public concerned about the country's deficit and debt.
             
An Ifop poll found that 54 percent of French consider the country's debt to be an extremely serious problem that merits taking immediate if difficult and painful measures.
             
France's debt level of around 85 percent is way above the EU's recommended maximum level of 60 percent.

 

Date created : 2011-08-24

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