Black Friday is Now! Don’t miss out on up to 60% OFF InvestingProCLAIM SALE

UPDATE 1-France not adopting austerity policy -Sarkozy

Published 05/10/2010, 12:37 PM
Updated 05/10/2010, 12:40 PM

* France will not adopt austerity measures

* Plans to restore public finances once recovery takes off

* Greater effort on pensions demanded of high earners

(Adds details)

PARIS, May 10 (Reuters) - France will not adopt austerity measures, unlike some of its European Union partners, but will look to restore its public finances as the economic recovery takes root, French President Nicolas Sarkozy said on Monday.

The government said last week that it was going to freeze much public spending over the coming three years in an effort to keep a lid on the budget deficit, but Sarkozy told union and business leaders this did not amount to an austerity plan.

"In the framework of efforts to stabilise the markets which we took last weekend, some of our partners who are under the most threat announced austerity measures," Sarkozy said.

"Some would want to see a similar turn in our economic policy. I tell them they are wrong."

However, Sarkozy added that it was still "imperative" to rectify public finances to prevent market turmoil from undermining the efforts made to emerge from the economic crisis.

The debt crisis pummelling Greece has threatened to suck in other EU economies including Portugal and Spain.

Worried about its own cherished AAA rating, the French government announced a broad spending freeze last week and officials say it is vital on-going negotiations over a reform of the loss-making pension reform lead to a substantive deal.

Sarkozy said on Monday the reform would require high earners to pay larger contributions to the state system, adding that income from capital would also be taxed at a higher rate to help make up the pensions shortfall.

But the president added that the reform would not work if it just involved hiking pension charges.

ARGUING OVER AUSTERITY

The overhaul is due to come into force by the end of 2010, but the government is not expected to introduce major changes overnight, preferring to ease in the measures progressively.

France is forecasting a public deficit to come in at 8 percent of gross domestic product this year and aims to bring this down to within the EU's three percent limit by 2013.

In an effort to meet this target, French Prime Minister Francois Fillon's office said last week that that state spending, excepting interest payments and pensions, would be frozen in value for the period 2011-2013. [ID:nLDE6451OV]

It added that state operating costs would be cut by 10 percent over three years, with a 5 percent cut in 2011.

Prominent members of Sarkozy's centre-right UMP party have said this amounted to an austerity plan -- a term which has become something of a political taboo in France out of fear that the very notion of belt-tightening would fuel street protests.

"The word that I myself would use is 'austerity'. After all, we're not here to fight over words," Jean-Francois Cope, head of the UMP parliamentary group, told Europe 1 radio on Monday.

Sluggish growth prospects have made the task of restoring order to public finances more difficult and the European Commission has said assumptions underpinning the 2011 and 2012 deficit forecasts were "optimistic". (Reporting by Yann Le Guernigou and Emmanuel Jarry; Writing by Sophie Taylor; editing by Crispian Balmer)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.