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25 Jun, 2013 15:58

France to cut government spending for 1st time since 1958

France to cut government spending for 1st time since 1958

In their effort to shift austerity from tax hikes, France will cut spending for the first time in over 55 years, by $2 billion.

Prime Minister Jean-Marc Ayrault confirmed on Tuesday that the French Government will decrease spending year on year. The government is facing opposition from lawmakers who claim the deficit will be higher than expected this year.

"This is the first time that we will propose to Parliament such a reduction. It is a structural effort," said Ayrualt.

The central government will cut spending in 2014 by $2 billion to avoid unpopular tax rises and quell unsustainable spending.

750 million euro will be cut from central government support and 750 million euro will be cut from ministry budgets. Ayuralt said the government’s priorities would remain unchanged: job creation, education, and housing.

Opposition lawmakers like Gilles Carrez who heads the finance commission at the national Assembly, said in an interview to Le Figaro the government would miss its targets, and that deficit in the euro zone's second-largest economy could reach 4 percent in 2013. Carrez calculated this to be €20 billion higher than anticipated.

After pledging to cut France's deficit to 3 percent this year, President Francois Hollande and the Socialist government revised their predictions and updated their deficit forecast to 3.7 percent of GDP.

Some of the estimated 30,000 demonstrators "against the austerity, against the finance and to ask for a Sixth Republic" on May 5th in Paris. (AFP Photo)

Hollande has not yet been able to deliver on his promise of 0.1 percent growth, on which he campaigned a year ago.

Hollande isn’t alone. Within the 27 member eurozone, only Germany and Austria have managed to generate positive growth, the rest are left in a similar predicament as France- slow growth, high unemployment, a looming triple dip recession, and a need to somehow cut more.

To reach their budget deficit goal, France should cut the public deficit to 3.9 percent of gross domestic product this year, then 3.6 percent in 2014 and 2.8 percent in 2015.

France’s economy officially slipped back into recession in May, after it shrunk for a second consecutive quarter. The IMF has forecast the economy will shrink 0.2 percent this year, more than the 0.1 percent initially predicted.

Hollande has done all he can to appear to fight the German dictate of austerity, even auctioning off presidential vintage wines to contribute to the endangered budget.

President Hollande at first stood with Merkel on austerity, but after being met by 30,000 protestors on the first anniversary of his inauguration, among slews of other protests, he has shifted his position to resonate with public opinion.

France’s appeal to China

The President has asked China to increase investment in France, to create a balance in employment between the two countries, the head of state said at a speech at the Elysee Palace on Tuesday before members of the China Entrepreneur Club (CEC). 

"There is no fear in French society," Mr. Holland assured the entrepreneurs, inviting the Chinese to up their stake in French projects, LePoint reported. Four percent of foreign investors in France are Chinese, and the CEC generates 245 billion euros a year.